Trump’s folly to cut corporate tax will change nothing
When government spends more and does not spend it wisely the poor just get lower wages and pay higher rents and other costs
Hong Kong would not reduce taxes across the board despite an anticipated global race to make corporate rate cuts following a US Senate vote to lower the amount businesses pay, the city’s finance chief said (Sunday).
- SCMP, December 11
There is a simple story here and it is a false one that Financial Secretary Paul Chan Mo-po is quite right to reject although I am not sure he understands why he is right.
The story is that economic growth is slow across the world is because corporate taxes are too high. Bring these taxes down and everything will be fine except for Hong Kong, which will see erosion of the competitive edge it has long enjoyed from low tax rates.
Now to the chart to set the background. It shows you that Hong Kong runs a consistent fiscal surplus except briefly in very bad times and that this surplus now stands at an annual average of 7 per cent of gross domestic product (GDP).
The US in contrast is in consistent fiscal deficit as steep as 10 per cent of GDP in bad times. This is now 3.5 per cent of GDP.
So here is a question with an obvious answer: If you cut taxes when you are running a big deficit and you keep expenditure rolling along unchanged, which the US is doing, how do you get the money you need?
