The ruling Liberal Democratic Party (LDP) debates on a taxation reform in the Fiscal 2018 in its council, the Taxation Study Panel, to compile a report in mid-December. The entity attempts to reduce corporate taxes, responding to the call of Prime Minister Abe Shinzo ‘to hike wages by 3%’. But this is an upside-down decision.


DEFORMED INCOME AND CORPORATE TAXES MUST BE CORRECTED


LDP’s Contradictory Decision


After the landslide victory in the October general election, the LDP’s taxation panel, reportedly, commits in a taxation reform, in particular, in terms of the income tax. The focal points, according to media reports, lie in reviewing ‘the deduction method’, especially in the one applied to pensioners, the preferential taxation for business entities that surge wages for employees and the tax reduction measure for investment activities. However, a fundamental concept is absent in these policies on the critical state in which the government has lost capabilities to procure tax resources.


More and more elderly people work for survival on one hand, while an increased number of the elderly receive a big sum of pension gaining simultaneously a high salary. The panel insists that some pensioners benefit from the double-deduction scheme applied to the incomes of salary and pension. But it does not pay attention to comprehensive taxation to assure fair and equal income taxes.


The panel also discusses tax reduction in investment activities in order to heighten productivity, but the judgment is unhelpful to a criticism that ‘the special treatment of taxation’ itself distorts the corporate tax system. The ruling LDP also agrees with a corporate tax reduction for a business entity that hiked wages. However, it does not owe responsibility for the descending wages of workers in the country, which is exceptional among the developed economies. It is also irresponsible for braking down the Japanese economy.


Culprit of Destruction of People’s Economic Life


Two facts are significant. One is relationship between consumption tax and corporate tax. In 1989 the consumption tax was introduced. For 29 years since then to 2017 revenues from the consumption taxes amounts 349 trillion Yen, while the decrease in the corporate taxes in the nation’s revenue accounts 281 trillion Yen. Vast majority of consumption tax revenue has been appropriated to fill the gap of stemming from corporate taxes.


The other is a reduction in wages of workers. People say ‘the lost ten years’ or ‘the lost twenty years’. Setting the year 1997 as a peak time of workers’ wages, a difference in wages accounts 15 trillion Yen a year on the average, totaling 262 trillion Yen for 18 years to 2015 since then (according to the 2015 Basic Survey on Salaries in the Private Sector).


As a consequence, Big Business has enjoyed the biggest profits in the history, as mass media report, and their internal reserves have exceeded 400 trillion Yen. Big employers have been not only happy with the reduction in the corporate taxes by 281 trillion Yen. They have refrained from increasing capital investment. In other words they have robbed money amounting 262 trillion Yen to be paid to workers.


Necessity to back to Rule of Ability to Pay


A horizontal taxation practice has prevailed in the worldwide scale under the neoliberal policy. In Japan, in particular, phases have swiftly developed, affecting seriously on the working population.


For instance, the maximum tax rate on incomes (a national tax); it was 75% in 1962, 70% in 1984, 60% in 1987, 50% in 1989 and 37% in 1999, which means at this moment it is les than a half in comparison with the highest. As for the corporate tax, it was 43.3% in 1984, and in 1999 it was set as 30% after several rounds of reductions.


In order to fill the revenue gap, the consumption taxes have been utilized. It is this policy that has led to serious deflation in the economy and violation of a rule in the Constitution which specifies the principle of ability to pay. Thus the Japanese tax system has lost ability to procure revenue resources.


It is indispensable to back to the system that had existed before the introduction of the consumption tax. This is the right path to rebuild a sound nation in terms of taxation.



November 28, 2017