The generally said “starting point of individual income tax” is “the starting point of individual salary and stipend income”, which means the pre-tax amount. In 1980, the NPC passed the first “PRC Individual Income Tax Law”, of which the subjects are foreigners including Chinese with foreign nationalities and from Hong Kong, Macau and Taiwan. It states that the starting point of individual salary and stipend is 400 RMB. Along with the reform, the tax system has been greatly changed in Oct 31, 1993, marked by“Individual Income Tax Law”. As this law has consolidated some of the contents of “Industry and Commence Family Income Tax”, “Individual Adjust Tax”, “Bonus Tax” and “Salary Adjust Tax”, adjusted and expended the taxed subjects. The starting point of individual salary and stipend has been raised from 400 RMB to 800 RMB, subjects to classification-excess-progressive tax.

　　Along with the development of state economy, the average controlled income of citizens has increased a lot. In some provinces and cities, 800 RMB has become the average salary, which cannot fit as the starting point of tax, as well as the function of “adjustment”. The academic opinions on starting points can be divided into two categories, one is to rise to 1200 – 1500 RMB nationally; another is to set up a range according the regional economic development. I think the adjustment of starting point is a trend. The specific plan should be the consolidation of the above two opinions: while raising the starting point nationally, giving the regions autonomy rights to establish regional starting point.

　　一、 The Necessity of Raising Individual Income Tax

　　（一） The Function of Macro Adjustment

　　In the beginning of tax history, the function of tax is organizing state income. Along with the deep understanding of market economic principle, the macro economy adjustment function has been recognized and stressed. The tax adjustment means the state use tax law to adjust economy subjects’ material interests, interferes economy, controls social economy operation. One of the important functions is “correct social injustice”, “adjust income unfairness”. Those are the theories of German economist Waglar, Britain Economist Dalton. They at the first time states that the tax is the function of adjust social unfairness and plays great role in manufacture. After then, the Keynes and systematic economists reassured and developed this opinion. Among all taxation classifications, individual income tax is the one most representing this macro adjustment function.

　　The present “PRC Individual Income Tax Law” states that the starting point of individual salary and stipend is 800 RMB, which was set up in 1993, because the state began to use the adjustment function to balance the income of different classes and reduce the gap of poor and rich. After 10 years, the GDP increased by 7% every year, the salary of citizens is averagely over 800 RMB. 800 RMB has already become the majorities’ property. So the basement of the individual income tax has changed a lot. If we want to use the function of individual income tax to adjust the property distribution, we should reform according times, and the starting point is the one needing reform.

　　（二） The legislation principle- tax fairness and social policy principle

　　1、 Tax fairness principle

　　Tax fairness principle is the general principle through the whole tax system, which is most presented in individual income law. “tax fairness principle has two meanings. One is the fairness of taxpayers’ positions, another is tax liability is fairly bear among taxpayers”. The second one can be divided into two parts: horizontal fairness and vertical fairness. Horizontal fairness means taxpayers with same economical condition and tax capabilities, bear the same tax liabilities. Vertical fairness means taxpayers with different tax capabilities, bear different tax liability. “The three indexes to measure taxpayers’ tax liabilities are income, property and consummation.” In terms of income, only when individual income tax’s deduction to be a certain amount, can represent the differences of individual’s payment capability. 800 RMB is very low compared with the average salary of many provinces and cities and cannot represent the differences of individuals’ capabilities. That means for different capable taxpayers, it is contrary to the fairness principle.

　　2、 Social policy principle

　　The 19th century German economics Waglar concluded at the first time the “social policy principle” of tax law adjustment, which is similar with the above tax fairness principle. From the substantial economy significance, taxation is the process of “re-distribution by the intent of the state”. What’s more, this re-distribution is the “adjustment of the market based income distribution”. The market competition means superior wins and inferior loses, which makes great gap between rich and poor, economically unbalance between regions. “the social policy principle of taxation is to use tax as a measure to interfere the market distribution, in order to maintain the balance between individuals and regions”. Reflected in the individual income tax law, it is the lowest deduction amount (starting point) system and excessive tax rate. Britain economist Dalton states “in a society with unequal income distribution, there is no reason to tax all or almost all people”. As is said above, 800 RMB starting point actually adds individual income tax liability to most salary class, which cannot adjust unequal income among individuals as a measure, and so that cannot solve the problem of poor and rich and social certainty.

　　二、 The Approach of Raising Individual Income Tax

　　Starting Point

　　Although the starting point of individual income tax is 800 RMB, some developed provinces and cities have already raised the starting point by increasing tax free amount. For example, in Guangzhou regions the pre-tax amount is 1260, in Shenzhen is 1500, in Beijing and Shanghai is 1000. Although these measures are contrary to the law, there is reality reason.

　　I think the state would better raise the starting point according to the average income of provinces and cities, ensure a proper range and endow the regions certain autonomy rights of pre-tax deduction, rather than let the regional governments to violate the legislation. In this way, we can solve the problems both in some rich provinces and cities where the starting point is too low and in other poorer regions. So the individual income tax can play the role of macro adjustment and balance the social property distribute and maintain social stability.