Salary Tax Deduction Reform And Share Of Labor Income

In the report of the 20 th National Congress of the Communist Party of China in2022,it was first proposed to standardize the order of income distribution and the mechanism of wealth accumulation.Optimizing income distribution has been an important topic in China’s economy and society for many years.The current pattern of income distribution in China is characterized by a low proportion of middle-income groups,a low proportion of income in the residential sector,and a high proportion of financial institutions in the enterprise sector with a fast growth rate.Therefore,how to optimize the income distribution pattern is a difficult problem at present and in the future.In addition to protecting the basic rights and interests of workers,we should let workers share the fruits of development,and increase the proportion of labor income.The key is how to maintain the stability of the share of labor income,so that the fruits of development can be shared by the people.In general,corporate income tax is levied on the capital elements of enterprises,which is conducive to encouraging enterprises to increase their expenditure on labor elements,thus improving the income distribution pattern of enterprises.However,in the actual collection process,some taxes will ultimately be borne by the labor elements of enterprises through transfer and other ways,and the proportion of payment will vary depending on the differences between different tax policies and enterprises.Because the change of labor factor price affects the fairness of the initial distribution,it may also be one of the main factors affecting the labor income share of micro enterprises.This article is based on the policy of allowing domestic enterprises to deduct salary expenses before tax according to the facts in Article 34 of the New Regulations on the Implementation of the Enterprise Income Tax Law in 2008(hereinafter referred to as "salary tax deduction reform"),and explores the direction,extent and path of the impact of the salary tax deduction reform on the share of enterprise labor income from theoretical derivation,model construction and empirical analysis.In order to answer this question,first of all,this paper analyzes the development status of China’s macro labor income share and enterprise’s micro labor income share and the background of salary tax deduction reform.This paper discusses the overall mechanism of salary tax deduction reform affecting the share of labor income in micro enterprises,and establishes a mathematical model.Based on the theoretical model analysis,this paper proposes the following Hypothesis 1: The reform of salary tax deduction has raised the price of labor factors faced by enterprises and employees.Hypothesis 1a: If the estimated value of the elasticity of capital-labor substitution is greater than 0 and less than 1,the salary tax deduction reform will increase the share of labor income;Hypothesis 1b: If the estimated value of the elasticity of capital-labor substitution is greater than 1,the salary tax deduction reform will reduce the share of labor income.Hypothesis 2: The reform of salary tax deduction promotes enterprises to expand employment scale,thus increasing the share of labor factors in income distribution.Hypothesis 3: The salary tax deduction reform has improved the labor productivity of enterprises and promoted the improvement of enterprise performance.Secondly,based on theoretical analysis,this paper constructs a double difference model and a two-way fixed effect model to empirically test the research hypothesis.This paper using the panel data of A-share,non-financial industry listed companies from2003 to 2014 for empirical analysis,and conducts a series of robustness tests and mechanism tests on the analysis results.The research finds that: first,from the overall perspective,the salary tax deduction reform has significantly increased the share of labor income at the micro level of enterprises.The results of the dual differential basis regression show that the salary tax deduction reform has increased the share of labor income of enterprises by about 3.59% on average.Second,in terms of the impact mechanism,the salary tax deduction reform mainly increases the price of labor factors,and the estimated value of the elasticity of capital-labor substitution is less than 1,which makes the share of labor income increase accordingly,verifies Hypothesis 1 and1 a,and overthrows Hypothesis 1b.At the same time,the employment scale of enterprises has declined,which overturns hypothesis 2.Third,while promoting the increase of the share of labor income,the salary tax deduction reform will further have a sustainable impact on enterprises,which is mainly reflected in the improvement of labor productivity,the increase of capital per worker and the increase of per capita performance,which verifies hypothesis 3.Through the cost-benefit analysis of tax reduction,it is found that the reform of salary tax deduction makes the increase rate of enterprise production efficiency higher than the decrease rate of government tax reduction cost.Finally,the results of this study found that the reform of salary tax deduction promoted the increase of the share of micro labor income of enterprises,mainly reflected in the increase of the price of labor factors,the reduction of the scale of enterprise employment,and further promoted the improvement of enterprise performance.The policies were implemented in place and the implementation efficiency was high.In combination with China,the following three policy recommendations are put forward: First,improve the government policy guidance mechanism and reduce the level of enterprise labor factor tax burden;The second is to improve the quality of labor force and meet the needs of the labor market.Third,optimize the tax system structure and strengthen the efficiency of tax collection and management.