Wednesday, February 27, 2008

Low Taxes and a Budget Surplus

HONG KONG (Thomson Financial) - Hong Kong on Wednesday posted its highest budget surplus on record for the year to March and unveiled tax relief measures to spur the economy in the coming year amid rising inflation and slowing global growth.

I guess they must have really high tax rates if they're running a surplus, huh? Well, not exactly:

Tsang said the government will cut income tax to 15 percent from April from the current 16 percent, while reducing corporate profit tax to 16.5 percent from 17.5 percent.

Well then they must spend a lot less than we do, right? Um, well not exactly:

Government spending as a proportion of GDP will increase to 19.2 percent in year to March 2009 from 15.9 percent in the current year.

In the US, federal spending as percentage of GDP has averaged roughly 20% over the last 40 years. It has ranged from 15.6% in 1950 to 22.9% in 1985. It fell to 18.4% in 2000 and is now roughly 20% of GDP.

So why are so many politicians saying that tax rates have to go up to close the deficit?

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