At the first meeting (Feb. 24) of the government Tax Commission’s expert panel to discuss tax reform, Finance Minister Naoto Kan called for a review of how the tax system has evolved since the 1980s. Apparently Mr. Kan thinks that past changes to the tax system have weakened the state’s ability to collect and redistribute funds, leading to a widening economic gap between rich and poor.

In fiscal 2010, tax revenue will amount to some ¥37 trillion, covering only about 40 percent of the government’s budget. Bonds worth ¥44 trillion — a record-high amount — have to be issued. It is inevitable that the government will consider raising some taxes, but so far discussion has inclined too far toward the inequitable measure of raising the consumption tax.

A one-percentage point rise in the consumption tax rate would bring in an extra ¥2.5 trillion a year, but it would weigh more heavily on people with low incomes. There must be a more equitable way to secure sufficient revenue. If it is determined to raise the consumption tax rate, the panel should look into lowering or maintaining the rate for groceries and other daily necessities.

Past reforms have often favored the rich. The income tax rate for the top bracket has been lowered from 75 percent to the current 40 percent. Inheritance tax, helpful for wealth redistribution, is now imposed in only 4 percent of cases. The tax advantages associated with income gained from stock dividends and capital gains also help the rich.

It appears the time has come to reassert the principle of a progressive tax rate on personal income, reducing the scope for deductions and other advantages that favor the wealthy.

Among other tax reform issues, private firms are calling for a cut in corporate tax. In discussing its plans, the panel should look at both the corporate tax rate and the corporate sector’s contribution to social insurance.

As for the government’s plan to assign identification numbers to taxpayers, care must be taken. Such a system could deprive people of their autonomy as taxpayers, and lead to an increase in the government’s overall control over society.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.