Regarding the March 18 article “Aso taps experts to help form economic policy“: I would like to comment on the position of Iwao Nakatani (director of Mitsubishi UFJ Research and Consulting). Low-wage people have a high consumption rate and a low savings rate compared to those with healthy incomes. Poor people will spend all or more of their income while rich people tend to save. Since the consumption tax penalizes low-income people more, it doesn’t make any sense to increase the consumption tax to narrow the disparity between rich and poor.
While a higher tax on savings may induce further tax evasion and could thus waste the potential benefits, a higher consumption tax will first penalize the low earners in the population and, second, discourage domestic consumption in general. So, any increase in the consumption tax will be counterproductive.
Additional public debt makes up for missing private investment and is useful for ending the current crisis. The only long-term solution is less public spending in time of prosperity.
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