The Yomiuri Shimbun (Dec. 16, 2010)
Tax reforms shouldn't aim only at the wealthy
The government's Tax Commission has adopted a set of proposals for reviewing income, inheritance and other individual taxes that will be incorporated into an outline of tax reform plans for fiscal 2011.
The reforms would raise about 470 billion yen in revenue by reducing various tax deductions from personal income. We believe the deduction system--by which a certain amount is subtracted from each taxpayer's income to ease his or her tax burden--should be reconsidered, as the nation is in dire fiscal straits.
It should be noted, however, that the proposed cuts in the tax deductions--a measure tantamount to increasing individual taxes--would target people in the higher income brackets nearly exclusively. This proposal can be regarded as an attempt to single out people who can pay higher taxes as the sole target of increased levies.
Doing so is not only unfair to taxpayers. The measure is bound to cause serious adverse effects, such as a decline in the morale of working taxpayers and the vitality of the nation's economy.
Lower deductions sought
The proposed imposition of greater taxes on high-income earners would be made possible by, for example, setting an upper limit on deductions for wage income--a scheme by which a certain amount of the salary earned by a corporate employee is deducted from his or her paycheck as necessary expenses recognized by the tax authorities.
The proposal would correct the current system, which increases the amount of deductions from individual corporate employees' salaries in proportion to their respective annual incomes. Instead, the plan would deduct the same amount from the salaries of anyone whose annual income exceeds 15 million yen.
This would be accompanied by even greater cuts in the deductions given to high-income corporate executives.
The proposed reforms would, as a rule, do away with deductions for people supporting dependent relatives aged 23 to 69 if their yearly income surpasses 6.89 million yen.
Inheritance taxes also would be subject to the proposed changes. The reforms would introduce a 40 percent reduction in the basic deductions from inheritances, a move aimed at expanding the range of people subject to inheritance taxation.
An official of the government's key tax panel has said all these proposals are intended to rectify income disparities among individuals by enhancing the power of the current tax system to encourage income redistribution. However, we believe the panel is confident that high-income earners would be less strongly opposed to heavier taxation than low- and middle-income taxpayers.
Tax burden already high
Admittedly, only 1 percent of salaried workers would shoulder a greater financial burden due to the proposed cuts in their employment income deductions under the reform plan. The proposed reform would affect only a modest 20 percent of taxpayers who are currently entitled to deductions for the support of adult dependents.
However, the current tax burden imposed on high-income earners is hardly light. Take a family comprising a married couple with two children--if its annual income stands at 5 million yen, such a family pays 195,000 yen in income and resident taxes annually.
This compares with 1.13 million yen in similar taxes to be paid by a household that earns 10 million yen annually. This means the latter family, which earns twice as much as the former, must shoulder a tax burden close to six times greater.
The current system imposes income taxes on families whose annual income is 3.25 million yen or more--a level of taxation higher than those in the United States, Britain, Germany and other industrialized powers.
Certainly, due consideration must be paid to low- and middle-income earners when it comes to tax reform. However, there is concern that tax reforms--if carried out in a manner that imposes greater burdens only on wealthy people--could produce negative effects.
Talented large-income earners could eventually leave Japan to work in low-tax countries, for example, despite their important role in supporting the nation's economy.
The panel's call for revisions to the deduction system can be regarded as an attempt to force high-income people to pick up the bill for massive government expenditures incurred through an increase in child-rearing allowances and other lavish handout policies and programs. The proposed measures will do little to fundamentally reform the tax system.
The government should immediately do what is needed to implement thorough tax reform, including an increase in the consumption tax. Doing so is essential to ensuring fair tax burdens.
(From The Yomiuri Shimbun, Dec. 15, 2010)