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SPOUSAL TAX BREAKS

Spousal tax break targeted to get wives out of house

Shrinking workforce spurs calls to get more women into full-time jobs

by Atsushi Kodera

Staff Writer

The government is considering cutting a tax benefit that critics say deters wives from seeking full-time employment, as part of efforts to spur the economy.

The reform would aim to unlock the dormant potential of the nation’s many out-of-work spouses and could potentially expand the workforce and increase tax revenues as the government tries to reduce its towering debt burden.

Read on, for an explanation of spousal tax deduction in a nutshell.

How does the spousal tax deduction discourage women from working?

The spousal tax deduction cuts the taxable annual income of the household’s main earner by ¥380,000 if the dependent spouse is earning ¥1.03 million or less a year. By reducing their taxable income, the main earner and the household pay less taxes overall.

The tax benefit, however, discourages many women from seeking jobs that would take their income above the ¥1.03 million threshold.

Also, if the wife is employed, rather than self-employed, and earning less than ¥1.03 million, that income is free of income tax, thanks to the combined effect of the ¥650,000 deduction on salaried income for single or married people, and a ¥380,000 basic deduction that is applied uniformly to all taxpayers.

What’s more, many companies offer such benefits as health insurance to employees with dependent spouses, but such benefits typically stop when the spouse’s income exceeds ¥1.03 million.

Experts say the reluctance to lose the advantages tied to the spousal tax deduction is a significant factor in keeping some women from working as much as they’d like.

Indeed, in a 2011 survey of more than 10,000 part-timers, the labor ministry singled out respondents who said they try, for one reason or another, to limit their earnings or working hours, and asked why.

Sixty-three percent said it was to avoid exceeding the ¥1.03 million limit and thus pay more in tax.

If this deduction is a problem, why was it introduced in the first place?

The system was introduced back in 1961, when Japan was in the midst of its postwar modernization drive and undergoing rapid economic growth.

Wives at that time were expected to stay home, perform household chores and raise the kids while their husbands toiled away at the office to support Japan’s resurgence. As such, the tax break helped support the typical Japanese family that was subsisting on a single income.

Half a century later, that model has crumbled as the norm. Today’s women are increasingly looking to continue work after marriage and even after bearing children.

Figures from the internal affairs ministry say that the number of households in which both husband and wife work surged 73 percent to 10.65 million in 2013 from 6.14 million in 1980. In the same period, the number of married single-income households fell 33 percent to 7.45 million, compared with 11.14 million in 1980.

Why does Japan need more working women?

The working population is a key driver of the economy. It is shrinking as a result of the nation’s declining birthrate and rapidly aging population. This has prompted the government to find new sources of labor to sustain the economy.

Because the rate of employment for women remains lower than for men, bringing more women into the labor force is believed to be a viable way to boost the working population.

On May 6, trading house Goldman Sachs released a report titled “Womenomics 4.0″ in which it called for closing the workforce gender gap. The report said that if the women’s employment rate, which stood at 62.5 percent in 2013, were raised to the male ratio of 80.6 percent that year, it would add 7.1 million employees to the workforce. This could lift Japan’s gross domestic product by 12.5 percent, it said.

Prime Minister Shinzo Abe, touting the elusive “third arrow” of his “Abenomics” program, hasn’t been shy to jump on the bandwagon.

In his Japan Revitalization Strategy in June 2013, Abe said Japan should eradicate waiting lists for day-care centers by the end of 2017 so house-bound mothers can be freed up to work during the day. He also proposed requiring listed companies to promote at least one woman to an executive position and proposed that employers make it easier for women to get their old jobs back after taking maternity leave.

Japan should make it easier for mothers whose children are already independent to become entrepreneurs, Abe said.

How is Japan’s working population expected to shift in the future?

The working population, defined as those aged 15 to 64, totaled 81.7 million in the 2010 national census, representing 63.8 percent of the populace.

According to a worse-case scenario set out by the National Institute of Population and Social Security Research in January 2012, the working population will shrink 10 percent to 73.4 million by 2020, and by 18 percent to 67.4 million by 2030. These figures mean that 59.4 percent and 58.5 percent, respectively, of the populace will be supporting Japan’s nonworking population. Looking further ahead to 2060, Japan may have only 39.7 million workers, or less than half the population, the institute said.

Are there objections to reducing or abolishing the spousal deduction?

Any move to raise taxes, whether through cutbacks in deductions or direct hikes in levies, is likely to face resistance, but the results of an online survey by Yahoo Japan from March 21 to 31 said a combined 67.1 percent of the 98,340 respondents called for either maintaining the status quo or even expanding spousal tax deductions, while 30.2 percent supported reducing them.

Some experts argue that what impedes women from going to work is not the spousal tax deduction but other factors, such as the difficulty of finding someone to take care of the kids, the lack of decently paying jobs and social expectations that pressure women to take care of the senior members of the family.

What will happen to the spousal tax deduction?

It is too early to predict what will become of it, because the government has only started to debate the issue. A subcommittee of the Tax Commission, chaired by University of Tokyo professor Minoru Nakazato, convened on May 12 and will eventually present its recommendations to Abe, but they are unlikely to be incorporated into the taxation reforms taking effect next April, a Cabinet Office official said.

However, the ruling Liberal Democratic Party has compiled proposals for a revamped third arrow of Abe’s growth strategy, which is expected to be announced in June. Those proposals call for replacing the spousal deduction with a new system of deductions that applies to the combined taxable incomes of a couple.

The Weekly FYI appears Tuesdays. Readers are encouraged to send ideas, questions and opinions to hodobu@japantimes.co.jp

  • JTCommentor

    All of this has some merit, but is now really the time for cutting tax breaks? Single income familes already are dealing with an increase to consumption tax, another on the horizon, steeply increased power costs, and increased other costs resulting from the weakening yen. As Japanese companies so far are too cheap/greedy to make any meaningful increase to wages, this kind of cut would just be a further hit to families who are already struggling. For many families with young children, the mother working is not an option as their wage would be almost totally offset by high childcare costs.

    The idea of getting women in more productive roles is lovely, but simply cutting tax breaks in the hope that the harship that ensues forces women into the workplace is not the right way of doing it.

  • lasolitaria

    Who would? Most of the world, in fact. People in rich, developing countries have been led to believe that, in order to have children, you must have a six figure income and check a HUGE list of supposedly indispensable requirements, but the truth is reproducing yourself has NO RELATION WHATSOEVER with having the material means or a comfortable life, as people in developing, even poor countries prove all the time by having babies in larger numbers, even when there are no worker benefits or toddler care and such. The problem with declining birth rates is not a financial one.

    • FunkyB

      Disagree. Childcare is very expensive and in some locations not adequately available. Daycare closes before work finishes. Working full time for a company here means you have little control over when you can get home. Those “indispensable requirements” are frequently just that. Your kid will get bullied if they don’t have the right backpack or whatever. Labor law and expectations about work need to change, not this tax exclusion.

      Part-time jobs give you more control over your time and are the only viable choice for the parent primarily taking care of kids. If you don’t have a car (another big expense), then things are even more difficult. Pushing women into the full-time workforce will only make the birthrate problem worse.

      In a related recent editorial, it was noted that in poorer/developing countries, a child is seen as an extra set of hand to cope with adversity, whereas in developed countries the financial burden is given more weight. If the government is going to cut this tax break, then it needs to plow that money straight back into subsidies for families with small children.

  • lasolitaria

    No, that’s not the problem.