A couple years ago I wrote a post for Breitbart where I discussed Hong Kong’s top rated tax regime. It is still rated one of the top tax regimes in the world because its tax rates are very low and it is simple to file in Hong Kong. Please someone tell the Dems and the #NeverTrumpers in Congress that the tax bill is good for America and Americans!
Hong Kong has a total corporate tax rate which is amongst the lowest in the world and is well known for its simple tax system. Hong Kong’s total tax rate on corporations is 23%, with numerous incentives for corporations to reduce their tax rates further. Out of more than 170 economies researched and included in the World Bank/PWC’s 2012 study of corporate and business taxes, the average total tax rate was 44.8% of profits. The total tax rate includes all taxes imposed on a business. Hong Kong is well below the global average at 23%. The US on the other hand, has a reported total tax rate of 131%, well above the world average and Hong Kong’s 23% rate. This study shows that the total taxes the US places on corporations (e.g. payroll, property, income, etc.) are 131% of the net income reported by these same entities.
In addition, Hong Kong tax system is administratively simple, while the US tax system is complex and costs individuals and companies millions, if not billions, every year in compliance. As tax systems become more complex, they become more costly for governments as well. The comparison between the administrative costs of the US IRS and Hong Kong’s IRD for collecting tax revenues is staggering. The US IRS employed 94,000 individuals and incurred US$12.3 billion in costs in 2011. The Hong Kong IRD employed 2,818 individuals in fiscal year 2011, which was the same number of employees as the prior four years in a row, and incurred HK$1.2 billion (US$156 million) in costs in 2011. The US has a population of 310 million and Hong Kong has a population of 7 million. Based on these numbers the cost per capita for collections of revenues in the US is US$40 and the costs in Hong Kong for tax revenue collections is US$22. The cost of collecting tax revenue in Hong Kong is half as much as the cost for tax revenue collections in the US on a per capita basis. Note that this calculation doesn’t include the additional costs incurred as a result of the more than 16,500 new IRS agents being hired for the implementation of Obamacare.
The U.S. tax code is famously overcomplicated; it has been estimated at 75,000 pages long. The original 1913 U.S. income tax code was about 400 pages. It grew to about 8,200 pages by the end of World War II, and 26,300 pages in 1984.
What is in these 75,000 pages? The answer is: nobody knows. Some people specialize in certain areas of the code that most professional tax experts do not know even exist.
However, I can summarize it for you. The first page has a set of tax rates. The following 75,000 pages say what income is exempt from those rates. Some of the more well-known exemptions include ones for hybrid vehicles, turning corn into gasoline, replacing home windows, adopting children, putting them in daycare, purchasing school supplies, going to college, investing in historic buildings, spending on research, and so on. Corporate tax exemptions can get much more complicated than this. Much more.
The Federal corporate tax rate today is 35%. Additional State tax rates can add nearly 10% more to this. Combined, it is one of the highest corporate tax rates in the world. However, the Federal government’s revenue from the corporate income tax is rather low, around 1.6% of GDP.
Let’s compare to Hong Kong: Hong Kong’s tax code is famously simple. It contains about 200 pages, and hasn’t changed much in fifty years. The top corporate rate is 16.5%. For a long time, it was one of the lowest rates in the world, although there are now several governments with a 10% rate. This 16.5% corporate tax rate produces revenue of about 5.6% of GDP. This very high number probably reflects Hong Kong’s status as a city-state and major financial center. It was 3.5% of GDP in 1990, with about the same tax rate. Nevertheless, the lesson is clear – you can get more tax revenue, as a percentage of GDP, with a low rate and simplified tax system, than a high rate and a massively overcomplicated tax system.
Hong Kong is doing things very well and very smart. It regularly is rated as one of the top financial centers in the world and is regularly rated number 1. Currently it is rated number 3 behind London and New York. Chinese come to Hong Kong to purchase goods since the taxes are so much cheaper than in China.