What to do with the taxable income deduction system based on a spouse’s income level will be one of the key issues in discussions by the government and the ruling parties on tax reform for fiscal 2017. The scheme, which gives a tax benefit to married couples if a spouse — in most cases the wife — earns less than a certain amount, has been criticized for lowering women’s motivation for work. The ruling coalition is leaning toward either abolishing or scaling back this deduction. But the system represents only one of many causes that hamper women’s full-scale entry into the labor market, while changing it will have major repercussions on both households and businesses. People involved in the discussions should carefully weigh both the merits and demerits of changing the system.
Under the system introduced in 1961, ¥380,000 is deducted from the taxable income of the head of a household if his or her spouse earns ¥1.03 million or less a year. It has been pointed out that this leads housewives with part-time jobs to limit their work days and hours so their income will not exceed the threshold — and allow their husbands to keep the taxable income deduction. It has therefore been cited as a ceiling that limits women’s roles in the labor market.
It has also been called an obsolete system dating back from the days when husbands were the sole breadwinners in a majority of families. In fact, the number of wage-earning households where both wife and husband have paid jobs topped those where only the husband works 20 years ago. The number of households where the wife had no job fell from 11.14 million in 1980 to 6.87 million last year — and that of households where both wife and husband had jobs grew from 6.14 million to 11.14 million over the same period.
Prime Minister Shinzo Abe first instructed the government’s Tax Commission in 2014 to review the spousal deduction system. Given changes in the income structure of households, the review seems reasonable and long overdue. Yoichi Miyazawa, who chairs the Liberal Democratic Party’s tax commission and is expected to hold sway over discussions on the issue, stresses the need for a policy that encourages motivated women to work. The review will be in step with the Abe administration’s push for greater participation by women in the labor force to make up for the manpower shortage caused by the rapid aging of society and decline in the working-age population.
Changing the system should not end in just imposing higher taxes on households that currently benefit from the scheme. If the system is abolished or curtailed, the tax burden may increase for some 14 million people to whom the spousal deduction is now applied. There may be confusion among businesses that currently use the ¥1.03 million mark as a threshold for providing spousal and dependent allowances to their employees.
There is reportedly an idea within the government to create a deduction scheme for married couples in exchange for abolishing the spousal deduction. Under this proposal, a set amount would be deducted from the taxable income of a household irrespective of whether the spouse of the breadwinner is working and how much the spouse earns. But introduction of this kind of scheme could reduce the disposable income of households where one spouse has no job. It could also greatly reduce the government’s tax revenue. To avoid that, one idea is to exclude high-income households from such a deduction, but there may be opposition from people who stand to pay higher taxes as a result. The issues that emerge from changing the spousal deduction scheme will have to be sorted out in the discussions.
It is also unlikely that the tax review alone will lead to greater labor participation of women. The ¥1.03 million wall is only one of the many roadblocks and practices that discourage women from taking up more work outside the home. There is a lingering tendency to leave the duty of raising children and running the household to women. On the other hand, abolition or scaling down of the spousal deduction system could also lead some women to feel pressured to take up a job. The government and businesses first should reduce the working hours of men and help change their mindset so they will participate more in family matters. In the long term, this would help encourage more women to seek employment.
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