Consumption tax rate increase will widen economic inequality -- Akahata editorial, June 1

At news conferences and in his requests to the prime minister, Japan Business Federation (JBF or Nippon Keidanren) President Okuda Hiroshi (Toyota Motor chairman) has called for the consumption tax rate to be increased in connection with the pension issue. Apparently in acceding to this demand, the business circle urged the ruling Liberal Democratic and Komei parties to put forward a drastic tax reform that includes a consumption tax increase in fiscal 2007 in their tax reform plan.

Mr. Okuda has also called for a corporate tax cut in the Council on Economic and Fiscal Policy. Responding to this request, Economic, Fiscal, and Financial Policy Minister Takenaka Heizo wrote in the Council's FY 2004 draft policy that the CEFP will reexamine the issue of corporate taxation.

Reducing burdens on large corporations

The consumption tax is a convenient system for large corporations because their tax burden can be shifted onto the consumer price. Large corporations are calling for the consumption tax to be used to reduce their share of burdens for pensions and other social insurance costs, and for corporate taxes to be reduced.

Okuda's Toyota Motor Corporation and other major manufacturers have set records in their earnings. They increased profits by cutting jobs and wages for workers and by beating down subcontractors' unit price offers. It is undeniably selfish for the representatives of large corporations to shift their tax burdens onto the people and small- and medium-sized enterprises.

An international comparison of the corporate share of burdens for tax and social insurance shows that Japan's large corporations pay only 50 to 70 percent of what their European counterparts pay. To say that the consumption tax rate should be increased to fund social services, which in effect is tantamount to calling for their already lighter burdens to be reduced, is a demand that insults the public.

Since its introduction in 1989, the consumption tax has brought in revenues of 148 trillion yen. In the same period, three corporate taxes, -- corporation tax, corporate residents' tax, and local corporate tax -- were reduced 145 trillion yen, through tax cuts and due to the economic recession. The consumption tax was apparently used to make up for this loss.

The highest rate for income tax was also reduced from 60 percent for an income over 50 million yen to 37 percent for over 18 million yen.

The consumption tax is a regressive tax that inversely poses heavier burdens on lower income earners. This was confirmed even by Ishi Hiromitsu, the government Tax Commission chair.

Tax cuts for major corporations and the wealthy and an increase in the consumption tax rate have greatly distorted Japan's taxation system. According to a Health, Welfare, and Labor Ministry survey, the income redistribution effect has dropped to less than one third compared to the period prior to the introduction of the consumption tax.

It is serious that the income gap is rapidly increasing. While a handful of wealthy people are increasing earnings, many people are being forced to endure hardships due to business failures, unemployment, personal bankruptcy, and homelessness. More than 30,000 people commit suicides each year. Full-time workers have been replaced with low paid part-timers.

The government's 'tax reform' that hits the low income earners while benefiting big companies and the wealthy is further widening the disparity between the rich and poor.

Unjustifiable government tax plan

The growing social disparity has become so serious that the government Tax Commission now has to take it up an urgent issue to tackle. The commission's task force heard specialists' report warning that both the 'consequential inequality' and 'inequality of opportunity' are increasing. The committee chair told the press that the government will have to review the entire tax system to activate redistribution functions in order to maintain some semblance of social equality.

With a consumption tax rate hike in mind, the 2000 mid-term report of the tax commission argued that Japan has achieved a bottoming up and leveling of the national income, which was not true.

Isn't it unfair to impose the same tax rate on the Toyota Motor Corp. president as on the unemployed? Major corporations must bear their due tax burdens. Let's foil the consumption tax increase plan that will only further distort the taxation system and expand social inequality. (end)