Posts Tagged ‘tax increase’

Economists think about soaking the rich, a little

Tuesday, February 14th, 2012

One of the most contentious issues to be argued in the next U.S. presidential election is whether or not to tax wealth. President Barack Obama believes the rich aren’t paying their fair share while Republicans are against any increase in taxes (with certain exceptions). Since Japan’s budget deficit is even worse than America’s, levying higher taxes on the rich would seem to be up for discussion here as well, but all we hear about is the consumption tax. Nevertheless, a number of Japanese economists have proposed a fuyuzei, or wealth tax, modeled on a similar idea that’s been used in Europe. The way the tax has been proposed makes its purpose twofold: while it should be able to generate lots of revenue for the government, it may also have the effect of getting dormant savings into circulation, which is just as important as reducing the national debt.

Even Mickey isn't safe

The proposal was recently explained in Tokyo Shimbun by Hiromichi Shirakawa, the chief economist for Credit Suisse. The basic idea is to tax the money in savings accounts and treasury bonds on an annual basis. Based on surveys conducted by the Financial Information Center, the total amount of money in savings accounts and treasury bonds is about ¥854 trillion, so if the wealth tax rate were set at 1 percent, the government could collect ¥8.5 trillion a year. In 2010, the amount of revenue generated by the consumption tax was ¥10.2 trillion.

Other economists have suggested variations on this theme, such as a graduated tax bracket system, meaning the more money you save, the higher the percentage of tax you would pay. Or, in order to really make it a tax on the rich, set a bottom limit for how much money is being saved, so that only people who fall above those lines pay the wealth tax. Of the ¥854 trillion mentioned above, 52 percent is controlled by persons with cash assets of ¥30 million or more.

According to the Bank of Japan, as of December 2011, individual cash assets in Japan amounted to ¥1,471 trillion, at least half of which is money in near zero-interest savings accounts. The wealth tax would not be levied on money invested in securities or insurance. As it stands, the government levies a flat 10 percent tax on capital gains from stocks, while it withholds 20 percent from interest income. Stock profits used to be taxed at 20 percent as well, but the government reduced it to spur investment with the aim of eventually returning it to 20 percent. The increase has been continually postponed, however, presumably because people still aren’t buying enough stock.

Shirakawa has advanced his idea on several TV shows and received numerous complaints from older people, whom the wealth tax would affect more since they have more savings than do younger people. In Tokyo Shimbun he said older people should think of their grandchildren, who will inherit this massive debt. But the main hurdle to introducing such a tax is lack of bureaucratic resources rather than political will. Because so many individuals keep the money in various accounts and/or invest them in various instruments, it is difficult for the Tax Bureau to determine exactly how much each citizen has in terms of assets. In fact, one of the arguments in favor of the controversial taxpayer ID number system currently under discussion is that it would make such calculations much easier, since all accounts and investments would be tied together through a personal ID number. (In fact, the government introduced the same sort of tax in 1950 but cancelled it after three years because it couldn’t get a bead on people’s assets.)

But what about so-called tansu yokin (savings in the wardrobe), meaning cash that is simply stuffed under a mattress or crammed behind the cookie jar, without any record that it even exists? No one has ever estimated how much cash is held secretly in Japan, though every once in a while you get some idea when an old house is torn down and a worker finds a stash of ¥10,000 bills; or an elderly person is swindled over the telephone by someone pretending to be his or her relative needing money right away to solve a problem. Last week, an old woman in Gifu handed over ¥60 million in cash to someone who said he was representing her son. Apparently, she had most if not all of this money on hand.

Politicians’ pay: Even more than you think

Tuesday, December 13th, 2011

Hirohisa Fujii, head of the Democratic Party of Japan's tax panel, listens to recent panel deliberations about a proposed tax hike to pay for reconstruction. (Kyodo photo)

In October we talked about how national assembly members’ pay was going back to normal after six months of pay cuts in the wake of the March disaster. At the same time, the administration of Prime Minister Yoshihiko Noda failed in its attempt to cut civil servant pay by 7.8 percent because Rengo, the union federation that represents government workers, demanded reinstatement of collective bargaining rights as a concession, which the opposition Liberal Democratic Party wouldn’t go for, so the measure was defeated in the Diet. Because Noda’s ruling Democratic Party of Japan was pushing for the 7.8 percent cut it postponed the voluntary 0.23 percent cut proposed by the National Personnel Authority, so in the end bureaucrats are getting paid the same amount they’ve always been paid. Actually, they’re getting even more since last week they received bonuses that on average are 4.1 percent higher than they were last year.

The government pay situation is a huge PR problem for the administration, since it’s about to ask the public to accept a tax increase to pay for reconstruction. To put things in the proper perspective, the basic monthly salary for a Diet member is ¥1,294,000 and his/her yearly bonus amounts to ¥5,530,000. According to the national tax agency, the average salaryman working for a private company in Japan earned ¥295,000 a month in 2010, and received yearly bonuses of ¥580,000. So on an annual basis, a national politician receives more than ¥21 million and a salaryman a little more than ¥4 million.

But there’s more. Each lawmaker is allowed ¥1 million a month for tsushin kotsu taizai-hi (communications, transportation and lodging expenses). This allowance is supposed to be spent on anything having to do with sending documents to or communicating with constituents on matters of a “public nature,” which basically describes anything a politician does. However, lawmakers are not required to submit receipts showing how they spent this money, so that’s an extra ¥12 million a year, tax-free.

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