Japan Press Weekly

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2012 May 9 - 15 TOP3 [ECONOMY]

Tax the rich to recover domestic demand

Akahata editorial (excerpts)

The House of Representatives on May 8 began discussing a set of bills to increase the consumption tax rate, but the need is for the National Diet to explore ways to not continue to rely on the regressive consumption tax.

Buffet rule

The controversy continues in western countries over the tax burden rate for large company executives, which is far lower than that for their rank-and-file employees. After U.S. billionaire investor Warren Buffet wrote for the NY Times, “Stop coddling the super-rich,” many European billionaires echoed this call.

The U.S. Obama administration publicly promises to initiate reform to require the rich to pay their fair share in taxes, the so-called Buffet rule. Chairman of the White House Council of Economic Advisers Alan Krueger sees the Buffet rule as a means to “combat widening income inequality.” Treasury Secretary Timothy Geithner also recognizes that the U.S. economy can no longer afford to extend tax cuts for wealthy Americans.

The poverty rate and the rich-poor gap are increasing more than ever in the United States, and neither its economy nor its fiscal condition is capable of continuing to provide the wealthy with excessive tax breaks. The same applies to Japan, too.

A large portion of billionaires’ income comes from sources such as stock investments and savings, and the tax rate on such financial income is lower than on earned income in Japan. In contrast to the stock-related taxation rate of 30-40% in western countries, the Japanese government now allows a rate of 10%, lower than the original 20% in the securities tax. The government is also planning to increase the consumption tax rate which will result in heavier burdens on lower income earners.

The Japanese Communist Party calls for a tax reform without a consumption tax hike based on the ability-to-pay principle. The JCP proposes that the government end the present preferential securities tax system; impose a tax of 30% on stock deals and high dividends; raise the maximum tax rate on income, residential, and inheritance taxes; and create a wealth tax.

Correction of imbalance in taxes needed

The International Labor Organization (ILO) in its World of Work Report 2011 states, “[V]arious consumption taxes have important repercussions on employment since they are mainly transferred to workers and consumers. […] Therefore, any increase would lead to a decrease in real disposable income, which could have adverse impacts on aggregate demand and consequently the demand for labor.” The report points out that the introduction of a wealth tax “would have a significant impact on debt reduction, with few adverse employment effects,” and that “a wealth tax would be progressive and so could serve as a good redistributive instrument.” The report projects each country’s “[r]evenue generation with a 3% wealth tax”. According to this figure, Japan would rank second after the United States.

Stop serving only the rich! Improve the household economy of ordinary people! Eliminate poverty and narrow the rich-poor gap! These measures alone would bring about a domestic demand-driven economic recovery.