Bridge income gap with transparency and taxes

The Southwestern University of Finance and Economics, based in Chengdu, Sichuan province, issued a report on the income gap of Chinese families, indicating the Gini coefficient of Chinese family in 2010 was 0.61, says an article in 21st Century Business Herald. Excerpts:

According to the data, China's Gini coefficient was 0.317 in 1978, more than 0.4 in 2000, and higher than 0.465 in 2004. The Chinese Academy of Social Sciences estimates it was 0.496 in 2006. Two researchers with Xinhua News Agency estimated it was higher than 0.5 in 2010.

The Gini coefficient is a measurement often used to show income disparities, which fall between zero and 1. According to the UN, a Gini coefficient lower than 0.2 means absolute equality of income, while a number higher than 0.5 means there is a great disparity in income. The world average is about 0.44, which is also seen as a warning to all countries.

Income disparity is demonstrated in many aspects. According to the report by SUFE, the Gini coefficient for Chinese urban families in 2010 is 0.56, and 0.60 for rural families. The income gap between eastern and western China is obvious.

So-called gray income, the lack of public services and the unfair distribution of limited resources in medical services and education are the main causes for the widening income in China now. Wages account for only a small part of the civil servants' and State-owned enterprise employees' income, while wages are almost the entire income for many manual wage earners.

Under these circumstances, it is almost impossible to bridge the income gap with income taxes.

Both the United States and Japan set good examples for China on overcoming the difficulty of narrowing the income gap through progressive taxation. However, China needs to make the income structure transparent, especially for the people benefiting from their power or unchecked monopoly of resources, which cannot be realized without deepening system reforms in many fields.