Regarding the June 5 front-page article “Noda replaces censured ministers,” what is Japanese Prime Minister Yoshihiko Noda thinking? Japan doesn’t have a revenue problem; it has a spending problem. The last thing you want to do is raise taxes during a time of deflation — particularly a tax that will discourage people from buying products they might have otherwise purchased.
Incentives matter, and to make transactions more expensive is only going to lead to fewer transactions, which means fewer taxable transactions and thus less revenue for the government.
The United States, under former President Bill Clinton, produced budget surpluses near the end of his presidency because business was booming and more taxable transactions were taking place. Clinton did raise federal income taxes by a small percentage, but it was at a time when the economy was growing.
Clinton also lowered the capital gains tax as an incentive for people to conduct more business transactions, including the trading of securities. The last thing you want is for people to stop buying and to start sitting on their money.
Japan needs to heed this lesson. The Japanese government does not need more money; it needs to spend less. Politicians will always spend whatever is available.
So, even if Noda’s tax hike scheme miraculously works — which I am not betting on — the government will spend that money in the end and demand more. Other people’s money is always the easiest to spend, especially when it is to the politician’s advantage.
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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