Japan Press Weekly

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2008 July 23 - 29 [FINANCE]

No more tax hikes!

Akahata editorial

The ruling Liberal Democratic Party’s Research Commission on the Tax System on July 23 began discussing ‘tax reform’ for the next fiscal year (April 2009-March 2010) at its subcommittee meeting. On the previous day, the government Tax Commission also began discussing a “drastic tax reform, including the consumption tax.”

Tsushima Yuji, who heads the LDP tax panel, said, “No ‘theoretically good’ taxation can be carried out without public support.”

In stating this, Tsushima apparently had strong public opposition to a consumption tax hike in mind. He believes that the biggest challenge is how to convince the public to accept the need for a tax increase.

In light of public needs

The Fukuda Cabinet, the ruling parties, and the business sector are trying to take advantage of public concerns about further cutbacks in expenditures on social welfare programs to persuade the pubic to agree to a tax increase, which is ostensibly necessary to secure welfare programs. However, the assertion that the consumption tax is “theoretically good” comes from an idea that gives priority to defending the interests of large corporations and financial circles.

The consumption tax is included in prices. Large corporations that are strong in price competition in the market may not have to raise prices because they can cut costs and keep primary costs as low as possible. For the business sector, increasing the consumption tax rate is a “mallet of luck.” The stated aim of the consumption tax increase is to fund social services. If that is the case, companies will not have to pay their share of social insurance premiums for employees. An increase in the consumption tax can be used for funding for corporate tax breaks.

The Cabinet Office’s White Paper on the Economy and Public Finance released on July 22 calls for the need to secure the resources for social services “in a way that will not prevent the supply of labor and capital.” In this respect, according to the White Paper, the consumption tax is exactly a “theoretically good” tax.

This is such a unilateral argument that gives priority to major corporations’ and asset holders’ profits. Actually, the call for the need to maintain ‘neutrality’ of taxation vis-à-vis capital or labor has been used as a pretext for lowering the highest income tax rate and weakening progressive taxation. The government also employed this argument as a pretext to cover up its policy of cutting corporate tax and tax on profits from stock trading.

Thus, the upside-down government policy of giving tax breaks to major corporations and asset holders and forcing the public to pay more has consequently increased the poverty rate and widened economic inequalities.

The consumption tax is a tax that helps increase the number of workers employed indirectly through staffing agencies and independent contractors. In filing consumption tax, corporations deduct what they paid in consumption tax on purchasing from what they paid in consumption tax on sales.

Since the cost for indirect employment of workers through dispatches and the use of independent contractors are regarded as equal to purchasing raw materials, the consumption tax on the use of temporary workers will be deducted.

Low-income earners spend most of their earnings on daily necessities. In contrast, the wealthy have a lot of money to invest in the stock market. Thus, the consumption tax rate, now five percent, affects the two different income groups differently.

Paying consumption tax means shifting heavier burdens onto lower income earners. The consumption tax system is thus the most incompatible with social services.

Consumption tax hampers Japan’s economic development

The lower the income, the heavier the consumption tax burden they are forced to shoulder. Therefore, increasing the consumption tax rate will discourage people to spend money. That will not happen if the highest tax rate is raised for earnings of large corporations and the wealthy as well as for capital gains.

Specifically, raising the consumption tax rate will have an immediate adverse effect on small- and medium-sized businesses that are the key economic players in Japan. Corporations with smaller funds, who cannot easily shift the consumption tax onto their selling price, are urged to pay it at their own expense. Far from being ‘neutral’ in economic activities, the consumption tax just hampers the economy.

In order to develop daily living conditions and the economy, the consumption tax, an adverse tax both theoretically and practically, should be abolished.
- Akahata, July 24, 2008