Business
China’s Tax Revenue Declines as Its Leaders Brace for Trump’s Tariffs
Buried in China’s latest government budget were some numbers that add up to an alarming trend. Tax revenue is dropping.
The decline means that China’s national government has less money to address the country’s serious economic challenges, including a housing market crash and the near bankruptcy of hundreds of local governments.
Weak tax revenue also puts China’s leaders in a box as they square off with President Trump, who has imposed 20 percent tariffs on goods from China and threatened more to come. Beijing has less spare cash to help the export industries that are driving economic growth but could be hurt by tariffs.
The drop in tax collections leaves China’s leaders in an unfamiliar position. Until the last several years, China enjoyed robust revenue, which it used to invest in infrastructure, a rapid military buildup and extensive industrial subsidies. Even as economic growth has slowed gradually over the past 12 years, taking a dent out of consumer spending, tax revenue held fairly steady until recently.
Tax revenue fell further last year than ever before. And the only two previous declines in recent decades were under special circumstances: In 2020, China imposed an essentially nationwide pandemic lockdown for a couple of months, and in 2022, Shanghai endured a two-month lockdown.
China’s declining tax revenue now has several causes. A big one is deflation — a broad decline in prices. Companies and now the Chinese government find themselves with less money to make monthly payments on their debts.
Since September, Chinese officials have promised several times that they were on the cusp of doing what practically every foreign and Chinese economist recommends: spending more money to help the country’s beleaguered consumers with such measures as higher pensions, better medical benefits, more unemployment insurance or restaurant vouchers. But again and again, including on Sunday, they have laid out ambitious programs without providing more than a smidgen of extra spending.
The usual explanation for the frugality lies in longstanding opposition from Xi Jinping, China’s top leader, who warned in a speech in 2021 that China “must not aim too high or go overboard with social security, and steer clear of the idleness-breeding trap of welfarism.”
But China’s 2025 budget, which the Ministry of Finance released on March 5, suggests a different explanation: The national government may not have the money. Despite record borrowing, it would be hard-pressed to find the money needed to stimulate consumption.
Overall tax revenue fell 3.4 percent last year. That might not look like a lot. But it is a sizable divergence from the overall economy, which according to official statistics grew 5 percent before being adjusted for deflation.
Falling tax revenue means that China’s budget deficits are widening not because of extra government spending to help the economy, but because there is less money coming into the till. The problem has been worsening for years at local governments, which have plummeting revenues from selling state land, and has spread to the national government.
Fitch Ratings calculates that overall revenue for the national and local governments — including taxes and land sales — totaled 29 percent of the economy’s output as recently as 2018. But this year’s budget indicates that overall revenue will be just 21.1 percent of the economy in 2025.
Roughly half of the decline comes from plummeting revenue from land sales, a well-documented problem related to the housing-market crash, but the rest comes from weakness in tax revenue, a new problem.
That adds up to a huge sum of money. If overall revenue had kept up with the economy over the past seven years, the Chinese government would have another $1.5 trillion to spend in 2025.
China announced this month that it would allow its official target for the budget deficit to increase to 4 percent this year, after trying to keep it near 3 percent ever since the global financial crisis in 2009. But analysts say the true deficit is already much larger, because China is quietly counting a lot of long-term borrowing as though it were tax revenue.
Comparing spending only with actual revenue, without the borrowing, the Finance Ministry’s budget shows a deficit equal to almost 9 percent of the economy. In 2018, it was only 3.2 percent.
“Deficits are quite high and debt is rising quite quickly, so they are fiscally challenged,” said Jeremy Zook, a director of Asia and Pacific sovereign ratings at Fitch.
The biggest taxes in China are value-added taxes, a kind of sales tax that the government collects on practically every transaction, from rent to refrigerators. Last year, revenue from value-added taxes fell short of expectations by 7.9 percent.
The word “deflation” is prohibited in official Chinese documents, so the ministry came up with a euphemistic explanation: “This decrease was mainly due to the fact that the producer prices were lower than expected.”
Producer prices, essentially wholesale prices calculated as goods leave factories and farms, fell 2.3 percent in China last year.
Revenue from value-added taxes began weakening in 2018. That was when the government cut these taxes sharply for exporters to help them offset the impact of tariffs imposed by President Trump in his first term.
The cost of that tax break has soared since then as China’s exports have surged, producing a trade surplus of almost $1 trillion last year even as the rest of the economy stagnated.
Another problem lies in falling salaries and rising layoffs, especially during the second half of last year. Income taxes collected from individuals were 7.5 percent below expectations last year, the Finance Ministry said in its budget.
China’s own steep tariffs on imports are another large source of revenue. But having lost much of their savings in the housing market crash, China’s consumers have cut back on purchases of imports like handbags and perfume, while prices have fallen for many imported goods. So revenue from customs duties was 9.2 percent below forecasts last year, the Finance Ministry said.
This year’s financial picture could be even worse than the budget anticipates. The Finance Ministry’s budget repeated many of the same optimistic assumptions about tax revenue and overall economic performance that it made last year.
Governments in the West derive considerable revenue from taxes on investment gains, inheritances and real estate. But China has no taxes on investment gains or inheritances and almost none on real estate.
The general lack of real estate taxes lies at the root of a separate problem: China’s local governments are also running out of money. Until recently, they derived up to 80 percent of their revenues from selling land to property developers.
But those sales have plummeted since the housing crash began in 2021, which has gutted demand for new apartments and bankrupted many developers.
Local governments are responsible for most pensions, medical benefits and other social spending in China. The national government has been selling extra bonds to raise money for bailing out the weakest local governments, many of which are behind on their debts. The national government has called for local governments to step up social spending but, short on cash itself, has offered scant new financial assistance.
And new taxes are not likely forthcoming, according to Jia Kang, a retired research director at the Finance Ministry and still one of China’s most influential voices on tax policy. He said in an interview that public opposition to inheritance taxes is strong, while taxes on investment gains or real estate would hurt stocks or the housing market.
One factor not causing China’s tax challenges is fraud or tax evasion, Mr. Jia said. The procedures for checking on payments have become very detailed, he said. “It is difficult to cheat in this system.”
Siyi Zhao contributed research.
The frustratingly unforgettable Kars4kids jingle, which has been worming its way into listeners’ brains for decades, is officially banned from the airwaves in California.
While the 1-877-KARS4KIDS song has been called one of the most memorable jingles in history, a court has ruled it is misleading.
A California man took the group behind it to court, saying he donated an old car to Kars4Kids, thinking its value would be used to help underprivileged children. He didn’t know the money generated was used to support Oorah, a Jewish organization that helps fund young adult trips to Israel.
An Orange County court judge ruled late last week that the New Jersey-based group’s advertisements were misleading because they omitted the company’s religious affiliation and hid the charity’s true mission.
The charity organization violated state laws against false advertising and unfair competition, the court ruled.
“The failure to disclose that funds benefit adults and families — and that this support is contingent upon a specific religious affiliation — is a material omission,” the ruling states.
Kars4Kids must pull its advertisements from the state within 30 days. Any new advertisement in California must clearly disclose the nonprofit’s religious affiliation and specify for whom the money will be used, the court ruled.
A Kars4Kids spokesperson said the ruling is deeply flawed, and the organization will appeal.
“We believe this case was nothing more than a lawyer-driven attempt to siphon off charitable funds for their own gain,” the spokesperson said. “The law and the facts are clearly on our side.”
The jingle first aired in the 1990s and has been loved and loathed by listeners ever since.
It has been the subject of talk show commentary and featured in “The Simpsons.”
Most donations go to help Jewish youth and families, the company’s chief operating executive, Esti Landau, said during her testimony.
Oorah runs a matchmaking program for Jewish youth and funds gap year trips to Israel for 17- and 18-year-olds. The company also used donations to purchase a $16.5-million building in Israel.
“The evidence also shows that children, especially needy or underprivileged children, are not the recipients of the proceeds of the donations,” the ruling states.
Kars4Kids has made it easier to donate old cars to benefit children and families across the country, which includes continued support throughout young adulthood, the company spokesperson said.
This isn’t the first time Kars4Kids has faced accusations of misleading listeners. Oregon, Pennsylvania and other states have also found the charity organization has misleading solicitation practices.
Californians account for a quarter of the company’s funds, yet the nonprofit has limited programs in the state, according to court documents. The organization claims to help thousands of children, including hundreds in California, according to a Kars4Kids spokesperson.
The charity’s infamous tune was catchy enough to convince California resident Bruce Puterbaugh to donate a 2001 Volvo XC. The car was nonoperational and not under his name, but was left in his care.
The car was valued at $250, and Puterbaugh said he felt deceived when he found out the money wouldn’t help young children. He originally sued the company in 2021.
“I feel taken advantage of by the ad and information that was not there,” Puterbaugh said in his testimony.
A donor would have to navigate the nonprofit’s website to learn about its religious mission.
“These omissions are inherently deceptive,” the court ruling states. “Broadcasting this jingle repeatedly over two decades is fraudulent.”
A Kars4Kids spokesperson said that the company’s website clearly states its Jewish affiliation.
The court sided with Puterbaugh and ordered the nonprofit to pay him $250 as restitution for his donated vehicle.
The Trump administration has been making headlines for taking steps to loosen restrictions around cannabis, including legalizing it for medical use. Now it is beginning an experiment that places cannabis even more squarely into mainstream health care: thousands of Medicare patients soon will be able to get CBD, a nonintoxicating component, for free.
“ONE in FIVE adults used it in the past year, and many say it improved their chronic pain enormously,” President Trump wrote on social media last month in a post cheering the program.
The aim is to gather real-life evidence showing whether CBD can improve patients’ quality of life and, by extension, reduce health care costs, administration officials say.
CBD products are already popular with some Medicare-age patients. A 2024 study in Clinical Gerontologist found that 14.3 percent of patients 65 and older had used them in the past year. Patients usually purchase over-the-counter gummies and tinctures to ease anxiety, insomnia and chemo-related nausea.
“Millions of older adults are already integrating cannabinoid products into their health care routines, yet the health care system has almost no infrastructure to understand what they are spending, why they are using these products, or whether these expenditures reduce other health care costs,” said Sasha Kalcheff-Korn, the executive director of Realm of Caring, a nonprofit group that conducts research and promotes cannabinoid therapies.
Despite Mr. Trump’s ebullient endorsement, many doctors worry about encouraging the use of unapproved supplements to geriatric patients, who typically have multiple medical conditions and already take many medications, some of which could interact with CBD products to detrimental effect. Still, their concerns would be eased somewhat, they say, if patients collaborated with doctors on appropriate dosing, which is another goal of the government initiative.
”I believe that CBD should be available to all seniors as part of their health care, recommended by a provider with knowledge of cannabinoid medicine,” said Dr. Melanie Bone, the director of medical cannabinoid therapies at MorseLife, a senior residence in West Palm Beach, Fla. “It may help with a number of ailments of aging, and has almost no downside. But CBD is not a panacea. The only way to know if it works is to try.”
What does research show about CBD for older patients?
CBD, or cannabidiol, one of the most prominent compounds in the cannabis sativa plant, is nonintoxicating and known for its soothing effects on the central nervous system. Many CBD products are made from hemp, a legal strain of cannabis that is rich in CBD and has only small amounts of the intoxicating compound, THC. The Medicare program restricts the amount of THC that can be in hemp-derived CBD to 3 milligrams per serving.
In recent years, CBD has become increasingly attractive to older patients. Results from studies are mixed to positive. But many of the doses evaluated contained more THC than those allowed by the Medicare guidelines. Most researchers have noted the need for more rigorous gold-standard trials.
Mr. Trump’s assertion that one in five adults use CBD products, many for chronic pain, which was also included in supporting documents for an executive order announcing the program, appears to conflate self-reported surveys and polls that broadly address adult use of medical cannabis or CBD.
But a chief benefit of CBD that some studies do underscore is that many seniors use the products to replace opioids for pain and benzodiazepines for anxiety and insomnia, which can have troubling side effects.
The new Medicare program mandates that the CBD be given to patients only by doctors, who regularly review their medical history and reactions to the products.
How does the program work?
One of the main goals is to learn whether CBD can help older people feel better enough to get off, or avoid starting, prescriptions for pain, nausea, sleep and anxiety. The hope is that CBD could help prevent more expensive medical interventions that those drugs can lead to. Opioids, for example, can prompt dizziness, constipation, overdoses and trips to the emergency department.
Only a small subset of Medicare recipients — those who participate in a type of health care network called an Accountable Care Organization — will initially be eligible for the benefit. So far, just five large groups have been approved to offer CBD. By January, 2027, CBD will be offered to patients in all 74 ACO groups.
The participating organizations have providers across an array of states, including Oklahoma, Texas, Wisconsin, West Virginia and Arizona. Currently, only patients affiliated with programs in New York and Florida patients have begun receiving CBD products, according to a spokesperson for the Centers for Medicare and Medicaid Services.
Those doctors must buy the CBD products up front, spending up to $500 per patient a year. They must agree to screen patients and products carefully, and collect real-time data on how the CBD affects patients.
They will not be directly reimbursed for the CBD. In the incentive-based structure, these groups receive a budget from Medicare. Those that come in under budget by improving patient quality of life and reducing costs, now additionally equipped with CBD as a tool, will receive a percentage of those savings.
Are there any obstacles?
Yes.
Late last year, Congress passed a measure that could remove from the U.S. market most CBD products, including those that doctors suggest for patients.
That is because many CBD products contain far more THC and other synthetic, intoxicating compounds than Congress intended in 2018, when it created the legal definition of hemp, to distinguish it from marijuana. Many of those amped-up CBD items, packaged to look like candy, have led to calls to poison centers.
In reaction, Congress placed severe limits on hemp last year that are set to take place in November. Under those restrictions, Cornbread Hemp, a Kentucky-based company with a contract to supply CBD for the new program, will not be able to do so, because its products’ THC content is above the new limits. A patchwork of bills introduced in the Senate and the House are trying to slow or rewrite what amounts to a looming hemp ban.
In his social media post last month, Mr. Trump urged Congress to act.
“Please get it done, and SOON,” he wrote.
Michele Hanisee has been doing everything in her power to expedite the arduous process of rebuilding her Altadena home.
But after navigating permitting delays, insurance stalemates and design flaws, there’s still one big unresolved issue that’s complicating her progress: sewage.
Hanisee owns one of nearly 700 properties in Altadena that’s never had sewer lines, instead operating for decades on now-outdated septic tanks or even more archaic and environmentally hazardous cesspools.
L.A. County officials — and many residents, included Hanisee — would like to connect these pockets of Altadena to the county sewage system.
But the cash-strapped county government said it simply cannot afford the estimated $70 million the new lines would cost. And although officials hope the county can eventually acquire state and federal funding for the project, the lack of certainty on the issue has left hundreds of fire survivors in a stalemate.
“Do I build [with] septic or wait for a sewer line?” said Hanisee, 59. She said this issue has been particularly frustrating as the county promised expedited rebuilding permits; “It doesn’t help much if they don’t expedite the infrastructure work,” she said.
It’s also a major financial concern. Several fire survivors in this situation told The Times that they feel torn between planning for an upgrade to county-run sewers, or just moving ahead with rebuilding and improving their onsite wastewater systems. Either option could bring hefty costs, particularly if the county doesn’t end up paying for the sewer line upgrade and it falls on residents. The worst-case scenario, many said, would be fixing up their septic system to meet current requirements, and subsequently having to pay for the sewer line installation and connection later on.
“How do you move forward when you don’t know how much money you have to spend on the build?” Hanisee said.
On Alpine Villa Drive, shown May 1, 2026, homes have mostly operated on now-outdated cesspool systems for sewage.
County officials say they are aware of the quagmire facing these residents, yet they have no timeline for — or guarantee of — a resolution on the issue.
“Everything comes back to money,” said Anish Saraiya, the Altadena recovery director for L.A. County Supervisor Kathryn Barger. “We have more than $2.5 billion worth of public infrastructure we have to rebuild, including these sewers.”
He said the county remains hopeful that Congress will come through with $16 billion requested in federal aid for the region’s recovery from the Eaton and Palisades fires, which could be used on the sewer project — but that hasn’t yet been allocated or even promised. His team also is exploring potential state funding or other outside money, he said.
But even if the cash were available tomorrow, Saraiya noted that the engineering and construction could be lengthy, and the project could be completed after homes that need it are otherwise ready to be occupied.
“There are a lot of uncertainties,” Saraiya said. “We feel confident we can secure the funding necessary to make sure that it’s not an obligation on homeowners, but that is a bit of a timing challenge.”
Michele Hanisee is trying to rebuild her home on Gaywood Drive as fast as possible. But she said it’s hard to move forward with looming uncertainty around her home’s sewage system.
Timing, however, is of the essence for fire survivors. Many say they can’t afford to lose momentum on their rebuild, concerned about losing contractors, rising construction costs or how additional delays could further shrink their already-dwindling insurance payouts for temporary housing.
Others feel completely stymied by this latest headache, which only builds on other unexpected costs and hurdles in an already complicated process.
“Will we be forced to go onto the sewer?” said Patricia Anderson, Hanisee’s neighbor, who still hasn’t decided whether she can or will rebuild. “And will we have a big expense for that? Those kind of issues are a concern.”
Patricia Anderson, 83, would love to rebuild her Altadena lot on Gaywood Drive, but the lack of clarity around potential sewage upgrades for her street has exacerbated the already overwhelming process.
About half of the 682 lots with on-site sewage systems — most of which are septic tanks — experienced fire damage or total destruction, according to county records. These systems, scattered across Altadena, “pose significant risks of groundwater contamination, surface water pollution and potential public health hazards,” according to a statement from the L.A. County Department of Public Works. But the department noted that replacing all of them at once is a large-scale project that “requires a level of cross-departmental integration that has historically been difficult to achieve in disaster recovery settings.”
So far, the county has funded technical planning for the sewer expansion, but environmental reviews, feasibility studies and securing resident permissions — as many of the affected streets are private — have not been completed.
Even though county officials hope to find a way to pay for a widespread sewer upgrade, they’ve also presented residents with an option to form small community improvement districts, or property tax assessment groups, to finance small portions of municipal sewer lines. About a dozen neighborhood groups are considering that option, but many fire survivors worry it only adds to their already-squeezed budgets; estimates of up to $70,000 per lot have been circling neighborhood group chats, if not more. The county’s estimate of the cost by parcel is actually higher: between $85,000 and $134,000, depending on a property’s location and topography.
But the idea of a fragmented sewer installation and residents footing the bill misses the context of this moment, said Morgan Whirledge, a new representative on the Altadena Town Council, which can pass along concerns or recommendations to Los Angeles County leaders, but holds no real governing power or spending authority. He is a fire survivor whose home previously ran on a cesspool system.
“This work presents an opportunity to coordinate,” Whirledge said, noting ongoing undergrounding of power lines by Southern California Edison and other widescale construction. “You don’t want to come rip a street up twice.”
The county’s Department of Public Works has said that residents rebuilding like-for-like, without major changes to the size or setup of their home, can continue to use on-site septic systems, if they’re in good condition. But any other rebuild requires additional testing and potential upgrades or expansions.
Morgan Whirledge surveys the initial stages of rebuilding at his Altadena lot on May 1, 2026, including where his outdated cesspool system still sits underground.
If residents are willing to take a gamble on the unfunded sewer expansion project, rebuilds can be approved “with the intent to connect later, even if the sewer installation isn’t yet scheduled,” the Public Works Department statement said.
Barger, Altadena’s most direct governmental representative, said she understands this is an issue “that can slow recovery if we don’t get it right.”
“My focus is on finding a path forward that gives residents clarity, avoids unnecessary costs, and ensures we’re rebuilding Altadena in a way that is sustainable for decades to come — not just patching together short-term fixes,” Barger said in a statement.
Some worry that 16 months after the fire, it’s already too late for that.
Hanisee is still waiting on her permits, which if approved, include plans to connect to a new county-run sewer, which she hopes isn’t too optimistic.
“There’s this huge unknown liability for people whose streets didn’t have a sewer line,” Hanisee said. “We just want to go home and also not be forced to sell and leave because of all these issues that are creating obstacles to rebuilding.”
Because she’s not building like-for-like, if she ends up needing to rely on her old septic tank, it will require additional testing and possibly an expansion or update, both of which would add more costs to her rebuild. She also worries that she’ll end up having to pay for the new sewage lines.
What once felt like quirks of their Altadena neighborhood — helping upkeep the road, running on a cesspool — “all these things … have turned into nightmares,” Whirledge said. “It’s this cumulative effect of these incremental cost increases and complicating factors. That can be a huge blow at a time when you’re already really vulnerable.”
He and his family transitioned from the cesspool to septic for their rebuild, while also building for the possibility of a future sewer line connection — a plan he realizes is cost-prohibitive for many fire survivors, especially when there’s still a real chance that residents have to fund the new sewer line.
Decommissioning his old cesspool and buying the new septic tank already cost almost $10,000, he said, and installation and testing could easily triple that. His insurance policy does provide some reimbursement for code upgrades, but he said it won’t come close to the costs the family is facing.
“It’s a lot of money,” Whirledge said, “especially for something you want to never have to think about.”
A worker pumps sewage from a portable toilet on the property of Morgan Whirledge, who is in the initial stages of rebuilding at his Altadena lot.
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