China cuts sales tax on cars and auto sales shoot up 25 percent

Here are the details of China’s sales tax cuts on new vehicle sales from Time Magazine:

On Jan. 20, the Beijing government slashed the sales tax on cars with engines of up to 1.6 liters from 10% to 5%. The measure, designed to get Chinese to buy smaller, more fuel-efficient vehicles, has had an immediate impact. January sales of small cars jumped 19% compared with the previous month, according to the China Association of Automobile Manufacturers. Also boosting buyer interest: Lower road taxes and fuel prices, which are set by the government.

…The surge in small-car sales helped China pass a milestone. For the first time ever, more cars were sold in China (735,000 vehicles) in a month than were sold in the U.S. (657,000). In January at least, China was the world’s largest car market. “The tax reduction was an obvious help to our sales,” says a sales manager surnamed Feng at the biggest Hyundai dealer in Beijing. “Since the new policy started, sales of our three models with 1.6 liter engines or below have gone up by 30% compared to the same period last year.

China’s stimulus plans “could have an enormous difference in whether or not people want to buy cars,” says Ben Simpfendorfer, chief China economist for the Royal Bank of Scotland. “What’s unusual about this cycle is that China faces the same problems as everywhere else in the world. The big question is how to spur consumer spending. Strong auto sales will help China, just like they’ll help America or Europe.”

And it works the same way for jobs! If you want to create jobs, what should you do? Should you waste 1.5 trillion dollars of money stolen from the private sector in order to expand government, pay off special interests, fund pork projects and thousands wasteful earmarks? Of course not! What you need to do is what China did. They made cars go on sale. We need to make employees go on sale. How?

The answer is to do what the Arnold Kling of the Cato Institute says and temporarily cut the employer portion of payroll taxes. This means that employers get all of the productive capacity of new employees hired within the United States, but the cost of hiring new employees is reduced. All the productivity at a much cheaper cost. Total cost of this stimulus plan: 230 billion dollars!

This plan is actually from Harvard economics professor Greg Mankiw, who describes it more fully here, but couples it with off-setting gas tax hikes.

I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

But who cares what Harvard economists think? The tax-cheat says that you can fix the economy by raising taxes on companies that actually hire people:

The Treasury chief today also defended the carbon emissions cap-and-trade proposals in the plan, saying the policy would raise hundreds of billions of dollars and help the country achieve energy independence. “It is critically important for our country that we begin the process now of changing the incentives Americans face for how they use energy,” he said. “It’s important to reduce our dependence on foreign oil, it is critical for climate change.”

Who cares if consumers have to pay more for oil and gas in a recession? We need to think of the trees and whales! Won’t someone please think of the sea-kittens?

Don Surber summarizes the problem:

That’s a good bailout because it allows people to spend their own money to buy cars instead of forcing them to pay for not buying cars.

…50 years ago, President Eisenhower dreamed of the day when China would abandon communism in favor of capitalism.

That dream is coming true.

Little did he know that we would be doing the reverse.

And here is Monica Crowley’s take:

China cut taxes, and auto sales spiked.

China cut taxes, and a part of its economy started to boom.

Cutting taxes equals economic growth.

The Chinese Commies get it.

…Still waiting for the American Democrats to get it.

Tax cuts = Jobs. Jobs = economic recovery. Why is it that we are disregarding capitalist recommendations from former communist countries like Russia and China? Why is it that we insist on angering the world with our socialist policies? Why is that we are going out of our way to impose new taxes on products that consumers rely on? We can’t afford this much spending no matter how much we tax the rich.

3 thoughts on “China cuts sales tax on cars and auto sales shoot up 25 percent”

  1. It’s amazing that, in this day and age, with so much concrete evidence to back it up, anyone doubts the efficacy of tax cuts to spur growth–then I remember that taxes aren’t put in place to generate revenue, so much as they are used for control/behavior modification.

    Of course, when I try to explain this to Joe Everyman, he thinks it’s sheer crack pottery despite the fact that he is incapable of refuting the obvious facts on the ground.

    Note: yes, there is a point of diminishing returns if your primary goal is to fund government (vis-a-vis taxes), but we aren’t anywhere near that point on virtually any of the myriad taxes we pay everyday (that most people aren’t even aware actually exist).


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