Regarding the Aug. 14 Kyodo article “Fiscal reform necessary to avoid crisis“: Politicians understand that when you tax something you get less of it. In the United States, this prohibitionist rationale outweighs the revenue-raising rationale in the case of tobacco and alcohol taxes.
Yet, when it comes to working, saving, and investing, politicians in the U.S. and Japan both develop a change of heart. They believe that higher taxes on these things will actually increase their growth. That is why fiscal policy minister Kaoru Yosano’s rationale for hiking the consumption tax is flawed.
At a time when economic activity is sluggish, an increase in the consumption tax will accelerate the hollowing out of domestic industries by destroying what little is left of consumer demand. The quality of life of every person living in Japan is at stake.
For things where demand is inelastic, such as food, clothing, shelter and other necessities, a hike in the consumption tax will not affect demand very much, but consumers will need to cut back on discretionary spending to offset their higher costs for these necessities.
A hike in the consumption tax will turn the clock backward on Japanese society to a time when owning a television or a car was considered a rare luxury.
Yosano’s argument that a hike in the consumption tax is the only thing that can stave off a fiscal calamity is not credible. Historically, tax hikes never bring in the amount of revenue politicians promise, because the projections that they use fail to account for the drop in demand that results.
Japan’s impending fiscal calamity is due to the massive unfunded liability of the social security system. No amount of taxes or outright wealth confiscation will raise enough revenue to meet this need. Instead, a complete reform of the entitlement program is needed.
The opinions expressed in this letter to the editor are the writer’s own and do not necessarily reflect the policies of The Japan Times.
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