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China’s communists recognize that taxes are disincentives

Communists love taxes

If anyone loves taxes, its communists. In The Communist Manifesto, the second of Marx and Engels’ ten aims was “A heavy progressive or graduated income tax”. After all, if everything really belongs to the government anyway, as communists believe, then tax is just people people ‘giving back’ property to its rightful owner. A good communist should regard paying tax as a positive thing, rather than an evil, necessary or not.

Given this, the normal workings of taxation – that if you tax something you get less of it – shouldn’t apply. Indeed, they might even work in reverse. If a communist government raises taxes on cigarettes, its devoted people might jump at the opportunity to repatriate more property to its rightful owner and run out to buy even more smokes than they used to.

But, as ever with communism, how its supposed to work is often very different from how it does work.

Want fewer foreign players? Tax them

Chinese soccer provides an example.

In recent years, soccer has taken off in China. The Chinese Super League has spent huge sums of money bringing in top players from around the world. So much, in fact, that the Chinese authorities have become worried that these imports will crowd out their home grown players.

How do they propose to reduce this flow of foreign purchases? By taxing it.

The Chinese Football Association is proposing a 100% transfer tax on the transfer fees of overseas players, effectively doubling those fees. The mere prospect of this tax is already having an impact. Diego Costa’s $88 million move to Tianjin Quanjian was sunk when the tax doubled the effective fee to $176 million overnight.

Why should the owners of Tianjin Quanjian balk at this transfer fee? It provides them with the opportunity to hand over more money to the government. As communists, they should be over the moon. Instead, the Chinese government is banking on the owners seeing this tax and thinking “We’re not paying that, comrade” They hope to get less of something and are using taxation of that something as the means. Even in communist China, taxes are disincentives.

In truth, the Chinese are much less communist than they used to be. As a result, they are much richer than they used to be.

John Phelan is an economist at Center of the American Experiment. 

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