Full name: Thạch Nguyệt Anh

Student’s ID: 11196227

Class: Interrnational Business 61B
National Economics University

HOMEWORK WEEK 8
1. Appropriate tax strategies for various life situations.
2.What are your lessons learned from tax fraud of Fan Bingbing?
BEIJING (Reuters) - China has ordered A-list movie star Fan Bingbing to pay about 884
million yuan ($129 million) in overdue taxes and fines, state news agency Xinhua said on
Wednesday, as a crackdown on tax evasion in the entertainment industry gathers
momentum.
The 37-year-old actor, whose June disappearance touched off wild speculation about her
whereabouts, has appeared in the “X-Men” and “Iron Man” film franchises, attracting
more than 62 million online followers in China.
Xinhua said an investigation by Chinese tax authorities found Fan had split her contract
to evade taxes of 7.3 million yuan ($1.1 million) over payments for her role in “Air
Strike”, a film due to be released this year.
Fan and companies she represented also evaded 248 million yuan ($36 million) in
additional taxes, Xinhua said, but it gave no details regarding this figure.
The tax bureau in the eastern coastal province of Jiangsu delivered its judgment to Fan on
Sunday, levying fines of more than 596 million yuan ($86.7 million) for tax evasion and
assessing overdue taxes of more than 288 million yuan ($42 million), Xinhua said.
In a letter posted on her official account on the Twitter-like platform Weibo, Fan said she
fully accepted the authorities’ decision, would overcome “all difficulties” to pay the
penalties, and step up supervision of her companies.
“I’m ashamed of my behavior and I apologize here to everyone,” Fan wrote.
“Every bit of my achievement is inseparable from the support of the state and the people.
Without the good policies of the Communist Party and the state, without the love of the
people, there is no Fan Bingbing.”
Xinhua said that under Chinese law Fan, as a first-time offender, would face no criminal
charges if she complied with the judgment and paid all the money by an undisclosed
deadline.
Reuters could not immediately reach Fan or a representative to seek comment. Xinhua
said police had put a “restriction” on Fan’s agent for attempting to conceal and destroy
evidence during the investigations in June.
Fan dropped off the radar that month, amid reports that she was involved in the
investigation, a vanishing act that prompted reports she had been detained.
On Wednesday, the South China Morning Post said Fan was released two weeks ago
from “residential surveillance” at a “holiday resort” in Jiangsu used to investigate
officials. She was transferred to Beijing for further investigation, the Post said, citing
unnamed sources.
Since June, China has been investigating tax evasion in its film and television industry,
following reports that some of its most famous actors have been accused of signing so-
called “yin-yang” contracts, one of which sets out the real terms, while a second, with a
lower figure, is meant for tax officials.
The State Administration of Taxation (SAT) said companies and individuals in the
industry who voluntarily “rectify their behavior” and pay back taxes evaded prior to
December 31 will be exempt from administrative punishment and fines, Xinhua said.

3. How could the income tax paid of billionaires in US so low?

It’s not every week that the national discourse catches fire over tax policy. The match, of
course, was the investigation ProPublica published on Tuesday of anonymously leaked
tax documents that revealed that the 25 richest Americans — billionaires such as Jeff
Bezos, Elon Musk and Warren Buffett — pay very little in taxes to the federal
government relative to their astronomical wealth. In some years, they paid nothing at all.
Depending on your point of view, it was either one of the most important stories of the
year or an invented scandal. Here’s a closer look at the report and what people are saying
about it.
Inside the report

In recent years, ProPublica noted, the median American household made $70,000 in
annual income and paid about 14 percent in federal income taxes. The highest marginal
tax rate, 37 percent, kicked in this year, for couples, on income above $628,300.

But the report showed the ultrarich pay just a fraction of that rate:
 Most Americans make money by working a job and earning a salary, and only a
small portion of that income can be channeled into investments — stock or
housing, say — that might yield a profit.
 The ultrarich, on the other hand, make a vast majority of their money from assets.
In Bezos’s case, his wealth increased by $99 billion between 2014 and 2018, but
he reported a total of only $4.22 billion in income. As a result, he paid just $973
million in income taxes — a 1.1 percent “true tax rate” on the rise in his fortune.
ProPublica estimated that the top 25 richest people collectively paid a true tax rate
of only 3.4 percent during those years.
 Even looking strictly at what the top 25 richest people reported as their income,
ProPublica found that they paid about just 16 percent to the government between
2014 and 2018. That’s because the ultrarich have perfectly legal strategies of
lowering their income tax liability, like using business credits and deducting
interest expenses on debt. The results can be perverse: In 2011, Bezos, then worth
$18 billion, filed a tax return reporting he made so little because of investment
losses that he received a $4,000 child tax credit.
 Many critics of the ProPublica story took issue with its “true tax rate” metric, which The
Wall Street Journal editorial board called“a phony construct that exists nowhere in the
law.” There is a reason wealth isn’t taxed like income, as the ProPublica report itself
noted:
 In 1920, seven years after the 16th Amendment was ratified, giving the federal
government the power to tax income, the Supreme Court considered the case of a woman
named Myrtle Macomber, who owed taxes under the new law on a stock dividend. But
she hadn’t received any money — just more shares of the stock.
 The court ruled that this wealth couldn’t be treated as income. It could be taxed
only if and when the underlying assets were sold, or “realized.” This distinction has
persisted ever since. Today, when assets are sold or pay cash dividends, the gains are
taxed at no more than 23.8 percent.
“I thought the ProPublica analysis of billionaire taxes was going to be exciting,” Megan
McArdle, a columnist for The Washington Post, wrote on Twitter. “Instead, it told me
things I already knew: that the U.S. tax code offers deductions for charitable donations,
loan interest, and business operating expenses, and only taxes capital gains when you
sell.”
The report’s central claim is not that this state of affairs is new but, rather, that it
has produced unjust outcomes. “The investigation my colleagues kicked off today
makes concrete something that economists have understood and debated for years:
Wealth inequality has actually increased much more than income inequality, and the tax
system isn’t doing much about it,” Lydia DePillis of ProPublica wrote. “What this
investigation lays bare is the mechanisms by which the very rich are pulling away from
most Americans, with all the democracy-skewing consequences that entails.”
Why has the tax system allowed for such runaway inequality? My colleague
Binyamin Appelbaum places the blame with the Macomber standard, which
he argues rests on false assumptions:
 The first falsehood is that unrealized gains are unusable. The report shows the
wealthy do use their unsold assets, by borrowing against them for spending money: Elon
Musk, for example, pledged Tesla stock worth $57.7 billion as collateral for personal
loans. Such loans often aren’t repaid until death, a strategy known as “buy, borrow, die.”
Until then, payments on the interest can be used to reduce income tax liability.
 The second falsehood is that people must eventually pay taxes on their wealth,
even if that doesn’t happen until their death. But the wealthy have strategies to avoid
even this final taxation. One is a loophole known as step-up in basis: When an
appreciated asset is bequeathed, its value is reset, or stepped up, in the eyes of the law,
allowing inheritors to bypass billions in capital gains taxes. Another strategy is to pass
down assets through complicated trusts and philanthropies, allowing the rich to avoid
taxes on almost half of their estate value.
 The third falsehood is that taxing wealth is simply too impractical for the
government to do. But as Appelbaum notes, the government manages to collect property
taxes, which is a kind of wealth tax, just fine.
So what should change?
There is no shortage of ideas about how to rein in wealth inequality.
Tax wealth: The Berkeley economists Emmanuel Saez and Gabriel Zucman have put
forward several proposals for directly taxing wealth, including a relatively modest 3
percent tax on fortunes over $1 billion, which would merely slow the rate of their growth,
and a more aggressive 10 percent tax, which would gradually shrink them.

The politics of this kind of tax, though, are difficult: Even if a direct wealth tax managed
to pass, there would almost certainly be a constitutional challenge.

Less constitutionally fraught is a proposal from Senator Ron Wyden, Democrat of

Oregon, to tax unrealized gains, which account for a majority of billionaires’ wealth.
Wyden’s proposal would tax these unrealized gains every year, and at the same rate as
income, for Americans who report income above $1 million or assets above $10 million
for three years in a row.
The logistics of this, too, would be tricky, as Robert Pozen, a senior lecturer at the M.I.T.
Sloan School of Management, has written for MarketWatch. Would it cause big yearly
sell-offs, for example, or lead to tax schemes by which the rich offset their income with
unrealized losses?
Zucman and Saez recently proposed a potential, if temporary, way around this pitfall: a
one-time income tax on the totality of every billionaire’s unrealized gains, which they say
would raise approximately $1 trillion.
Fix the estate tax: President Joe Biden has proposed a tax plan that would close the step-
up in basis loophole that allows for the seamless intergenerational transfer of wealth.
Doing so could raise $113 billion over a decade, according to an analysis from the
Wharton School at the University of Pennsylvania.
Raise corporate and capital gains taxes: Biden’s plan would raise the corporate tax
rate, from 21 percent to 28 percent, and crack down on companies that avoid this tax by
shifting profits abroad. The Times editorial board wrote in favor of this idea in April,
though some progressive economists say it doesn’t go far enough.
Biden’s plan would also tax capital gains at the same rate as income. This would
effectively close what DealBook calls “one of the most egregious and persistent
loopholes” in the tax code, which allows investment managers to pay less in taxes by
treating their pay as capital gains rather than income.
Make income tax records public: In the 1860s and 1920s, income tax data was made
publicly available, just as local governments now disclose property tax records. “It’s time
for another revival,” Appelbaum wrote in 2019.
The bottom line
As my colleague David Leonhardt writes, the current tax system does not derive from a
law of nature. “While some tax avoidance is inevitable,” he says, “the federal government
has largely succeeded in raising taxes when it has tried.”