Digest

Debate regarding a 2% rise in the consumption tax from April may lead to a consumer rebellion. According to opinion research conducted by the media, more than 70% of the nation is still opposed to this move and the Japan Communist Party is inciting citizens by starting that the consumption tax is the "evil tax of the land" . But the main reason for the nation's anger is that administrative reform has been delayed, in whose background simmers irritation due to dim prospects for an exit from a prolonged recession and asset deflation.

Most Japanese understand the need for a consumption tax; it is indispensable that we considering the tax load within an aging society.

At the heart of the consumption tax issue is the price of goods. A 2% raise in the consumption tax means that prices will rise.

Consumers will not be troubled if manufacturers make efforts to reduce costs and if real prices do not rise.The world's highest transportation costs, a complicated distribution system, vastly overrated land prices, an inefficient bureaucracy and an economy characterized by so-called "Dangou" give rise to the world's highest prices. When these conditions are improved, a reduction in prices by up to 30% or more will be possible.

　Real intention behind
　the raise of the consumption tax

The debate about the 2% raise of the consumption tax reminds me of a revolt of consumers. According to a poll done by the media, more than 70% of people are still against the raise. This has energized the Communist Party of Japan, which is vigorously gathering people's signatures.The people are angry, to be sure. But the reason of their anger is not that "the consumption tax is essentially bad." It may be that the real reaon for the anger hasnot been noticed yet by the people themselves. It is not surprising, because even the media have not yet acieved a mature discussion.

The main reason for people's anger is the sluggishness of administrative reformations. In addition, people feel irritated by the lengthy recession and the fact that they cannot see an end to "the deflation of assets." Many people think, "Though the private sector is suffering from restructuring, the government and politicians are victimizing people without making an effort to restructure themselves". To this problem other marginal factors are added, such as exaggerated

"ekizei" (the consumption tax retailers received but not yet paid to a taxation office) and the misunderstanding of the taxation system of our country in general. The result is an outburst of opinions against the consumption tax. But we must not confuse the main problem and marginal ones behind it.

If I try to talk rationally and logically to people, most people seem to understand the necessity of the consumption tax itself. My explanation is as follows; in an aged society, equality between generations is important, so that the burden of tax should be borne a little at a time by as many people as possible. In order to lighten the tax imposed too much on working people, we must adopt a taxation system like the consumption tax, which is applied to a wider range of people. Besides, the consumption tax has the merit of correcting the defects in our taxation system (c.f. 10,5,3system, or 9,6,4system), Besides the explanation above, I must mention the fact that the minimumu taxation revenue is so high and the number of the tax-exempted families is so great in Japan that the burden felt by most people cannot be left as it is. Let's talk more concretely.

In 2020 the national burden rate will be much over 60% if the present standard of social security maintains. If the nursing care insurance is fully enforced, 70-80% of the national burden rate, as experienced in Scandinavian countries, is not unrealistic. If the present sysytem's stress on the P.A.Y.E. tax is not changed, the life of salaried workers' will be miserable." To make those who dont's pay income tax pay tax " is the meaning of the consumption tax.

　The partiality between generations

Among others I put stress on the partiality between generations. The generation now receiving pensions will receive 17 times as much during their average lifetime as they formerly paid in insureance prenmiums. As for taxes, they were exempted when they paid their insurance premiums, and when they receive thier pensions, they are virtually exempted because of the higt deduction system. I have not found a country where tax is exempt both at " the entrance and the exit ".

On the other hand, for future generations, not only will the rate of paid money and received money be reduced 4-5 times, they will be saddled with increasing taxes as a result of the financial debt. And with care insurance introduced, future generations obviously will turn out to be much less favored. This is not surprising because the proportion of the numbers of payers of care insurance and the receivers of insurance money is sure to be reversed dramatically.

The reason for this disaster is that basic blue print for social welfare doesn't take into account the situation after 2023 in detail, when the fluctuations of the population will stabilize. Actually, it only takes account of the mid term balance, which corresponds to the period of fiscal reculculation every 5 years. In other words, the early dream of realizing the standard of welfare of Scandinavian standard with half the burden of the Scandinavian people has turned out to be impossible. Unless slderly people take over part of the burden from now on, a wider discrepancy between generations might cayse a moral hazard among all the citizens. If the standard of social welfare should drop suddenly, the possibility of such a moral hazard would be high. In order to avoid such a situation, the consumption tax is necessary.

　The reform of the consumption tax is necessary

By the way, is the present consumption tax freesystem from any defects? Of course not. Trere is the "degressivity" of tax to revenue, "Ekizei", and the possibility of double taxation (it happens when there is a dealer exempted from tax some reason in the process of circulation). That is why the reform of the consumption tax is necessary. As for the "degressivity", which is most important, I'd like to introduce an excellent idea from Professor Akira Yokoyama at Chuo University. It is titled." The idea of a payment tax accompanied with a refund of the consumption tax on necessary expenditures. It is a way to refund money by uniformly returning to the consumer the amount of the atandard livelihood allowance (633,000 yen per one year) multiplied by the proportional consumption tax rate. This total amount is considered as basic expenditure. This method is compatible with the present consumption tax system. If the tax rate is 5%, 31,650 yen is annually refunded per capita; 126,600yen for a family of 4. That means the food expenses etc. for those who receive a low income is actually exempt. Moreover, the low a perdons income is, the less the tax burden is. This procedure is not so complicated because it is not necessary to know each person's revenue.

As for the "ekizei" problem, it can be solved by lowering the tax exemption limit, reducing the time limit for tax payments, and introducing the invoice system. Double taxation could not happen after the introduction of the invoice system. The tax exemption limit should be lowered to a reasonable ten millions yen. The arrears must be treated more severely because it can be considered as the appropriation of money on deposit. The time limit on tax payments should be one month, in my opinion. If these reforms are realized, the consumption tax, or rather, the "payment tax" will result in a fair taxation method, which will be able to overcome the various defects of the comprehensive income tax. However, I don't agree totally with professor Yokohama.

I am against his idea of abolished corporate taxes and income tax, the rate of the payment tax could be as much as 34%, and large-income earners would be excessively favored. My conclusion is that we should transfer taxes from incomes to payments, while keeping a certain amount of income tax, so that we can cover the defects of the income tax.

　The problem of the consumption tax is
　the problem of prices

The most important part of the consumption tax is in fact the problem of prices. If consumption goes up by 2%, prices will be raised by a little less than 2%. In such a situation, if dealers didn't add the raised portion to the price of an article, and made efforts to lower the cost, consumers would not suffer. So I think what Japanese consumers really should blame are the high costs that the Japanese system necessitates. The highest cost of transportation in the world, the complicated system of distribution, land prices which have little to do with the value of its use, an inefficient cut of land transportation costs should influence prices considerably.

Let's take the problems of bid riggings and "keiretsu"(exclusive business groupings). The problem of competitive bids for the telephone construction work by NTT is one example. The construction work needed by NTT is contracted out to ten main family companies. The executives of these companies have descended from the old Telegraph and Telephone Public Corporation and NTT. And these companies sublet the construction work to their subconstractoes almost exclusively. These subcontractors are usually awarded the jobs in the order the contracts are offered. Besides, it is not rare that they again sublet their contracts to their own subcontractors. Consequently, the real costs of the jobs are less than half of the contract amount that NTT awards. The amount of the margins of operation, or other intermediary margines, swell beyond control. Furthermore, if the contractors which really do the construction work want to use the cheaper materials, NTT demands that they buy them from the family companies of NTT. The prices fixed by these companies are three times as high as the lowest prices. As long as these kinds of transactions were made, there will be no possibility of competition. If the transactions were done on the principle of competition, the construction costs would be cut by half, and the telephone charges of people in general could be lowered. The numerous regulations by the central government are also the cause of raising cost. The irrationality of the high prices in Japan is much more serious than the defects of the consumption tax. The anger against the raise of the consumption tax is meaningless unless it becomes a driving force which forces the government and politicians to carry out structuralreform.

　The relation with financial reform

There is another thing people are skeptical about. They nervously suspect that the financial deficit will not be ameliorated even if the consumption tax is raised. Since this tax reform is based on "revenue neutral" , it will naturally not lead to the cut of the financial deficit directry. But nevertheless we cannot help but sympathize with people's complains that they cannot support the raise of the consumption tax without financial reform. Even if it is not linked to the consumption tax, if people don't see any trace of effort to cut on the fiscal expenditure, they will be even more irritated. In this sense the government's budget for fiscal 1997 is incredibly thoughtless and irresponsible. In it, it's to find all sorts of wasted money, such as the planned Sinkansen (bullet train) network, the lift of freezing the reclamation work of Lake Nakanoumi, and the supplementary budget for subsidies for agriculture. The government also hasn't made any effort to revise the distribution of investments in public works. On the contrary, they intend to make future generations pay for them. An example of this is ; they put off the solution of the long-term debt of the ex-Japan National Railway. They even canceled the shift of debt to the private sector. And that is the least possible measure the government could take. They canceled it for the benefit of the financing section of the Minister of Finance. What folly that is!

The excuse for such folly is called pump priming. But the ineffectiveness of lavish public works projects deposited their money. The general contractors who have undertaken public works do nothing but compensate for old debt. Many of workers are from abroad and send more money home. So taxpayers neither enjoy the benefits of the recovery of economy, nor the amelioration of the infrastructure. On the contrary, they will suffer the burden of the interest they will have to pay in taxes in the future. It is as if parents or grandparents were abusing the cards of their children or grandchildren.

What we should do is to reform and slash expenditures. But we should not do this public works except when absolutely necessary. The O.D.A. must be confined to effective ones. Open competitive bids must be introduced more widely. These are the measures that should be taken even on a short-time.

　The proposal of the radical reform
　of the taxation system

Now, let's come back to the taxation system, I propose a radical reform instead of minor changesin each domain, taking advantage of this rare occasion when people are strongly interested in the taxation system because of the announcement of the raise in the consumption tax. Suppose we can integrate corporate taxes and impose a tax on the gross benefit plus introduce a "corporate capitatation tax", so that we will be able to resolutely lower the tax rate to flat 15% or so. To balance these changes, many of the special tax exemptions should be abolished. And accounting standard should comply with international standards. Fringe benefits should be rigorously taxed. All the tax revenue should be coverged into a single budget system composed of the central government and the local governments, and later it is to be divided among them. The tax system should also be designed so that businesses in the black can enjoy de facto tax reductions. All of these ideas are based upon the following principles; enlarging the basis of assessment, lowering of tax rates, coping with globalization, and the simplification of the taxation system.

As for the tax on securities transactions,
　it must be abolished

Indirect taxes should also be simplified. For example, the 9 taxes relating to automobiles should be unified into the carbon tax. More income tax could be reduced if the amount of the "payment tax" is sufficiently high. The payment tax should not be imposed on water bills, instead to be used to pay foresters. In short, it's a shift of the tax to environmental use. The new method of exemptions of the income tax should introduced as a simpler system. The complicated tax exemptions based on human relationship including special tax exemptions for one's spouse should be abolished. The year-end adjustment of taxes should be abolished. The real estate acquisition tax and both the registration and license taxes should either be abolished or changed into fees.

In brief, what I intend is the best possible simlification of national and local tax systems. Fixed property taxation should be strengthebed, whereas certain spaces for living should be exempt. Among others, the commercial real estate should also be subject to taxation even if the proprietor is a non profit organization. For instance, private cemeteries should be excluded from the exemption of the fixed property tax by amending local tax laws. The N.P.O.should be allowed to enjoy a certain exemption as it would in western countries. Only the definition of a juridical person in the article 34 of the Civil Code should be drastically revised. The complete corporate tax system should be reformed.

That's all I have in mind as a grand design for the reform of the taxation system across the country including both the central and local governments. For I think the taxation system has a lot to do with the people's consciousness about democracy. The immature democracy and the lack of political consciousness in Japan is closely connected with both the complicated taxation system and people's consciousness about democracy. The immature democracy and the lack of political consciousness in Japan is closely connected with both the complicated taxation system and people's dependence on the companies they are working for, and on the authorities (okami) for taxation and tax payment.I think a fair tax system is the baisis of a strong democracy.