The government and the Democratic Party of Japan have started discussions on tax reform for fiscal 2011 and beyond. Both should learn a lesson from their experience just after the DPJ came to power in September 2009. At that time discussions at the government’s Tax Commission did not go smoothly. The government and the DPJ need to present a clear vision of the future form of the nation’s tax system.

If the DPJ wants to survive as a ruling party, the party and the government need to make proposals that differ in basic thinking from the policies adopted by the Liberal Democratic Party, which ruled Japan for decades, and that are reasonable and cohesive as policies.

They should also aim to stabilize people’s lives and enliven activities not only with regard to the economy but also in spheres such as education, cultural activities and scientific research, while steering the state through difficult financial straits.

For fiscal 2011, the government and the DPJ are tackling such issues as corporate tax reduction as well as the introduction of environment and international solidarity taxes. In the discussion of corporate taxes, they should consider whether lowering the taxes will actually lead to greater corporate investment in Japan and and, thus, to increased economic activity and employment.

If they are serious about introducing environment and international solidarity taxes, they have to show people the basic philosophy behind the new taxes, explaining what kind of industrial society they want to build and what kinds of contributions they want to make in the international community.

Discussions on raising the consumption tax are inevitable. But it must be kept in mind that if the rate of the tax is raised at a time when the economy is sluggish, it will further cool down the economy and lead to lower tax revenues. Steps also should be taken to reduce the reverse-progressiveness feature (which places a greater burden on poorer people) of the consumption tax.

The government and the DPJ should seriously consider the function of taxes in the redistribution of incomes. They should discuss tax reform and social welfare in a unified way.

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