Debate on Tax System Reform: Look Squarely at How to Share Burdens Fairly

Editorial

16:14 JST, December 13, 2024

How should the public be asked to bear the burden in promoting tax system reform? The tax system must be made into one that does not undermine a sense of fairness, keeping in mind what the economy and society should be like.

Regarding the “¥1.03 million barrier,” the ruling coalition of the Liberal Democratic Party and Komeito, together with the opposition Democratic Party for the People, have agreed to raise the ¥1.03 annual income threshold for the imposition of income tax, starting next year. The DPFP seeks to increase it to ¥1.78 million, and the other two parties have agreed to endeavor to reach that level.

Although the parties confirmed the direction of the agreement, they have yet to finalize specifics on the actual level of the increase or measures to secure financial resources in response to the consequent decrease in tax revenues. They intend to continue to discuss these issues.

Raising the threshold is desirable in itself as low-income earners’ households are struggling with their budgets due to higher prices. It is also expected to reduce the number of people who limit their working hours.

However, the government estimates that raising the income tax threshold to ¥1.78 million would reduce tax revenues by ¥7 trillion to ¥8 trillion. It is expected that the higher the threshold is raised, the more difficult it will be to find measures to cut spending and raise other taxes to compensate for the decline in income tax revenues.

A revision must be avoided in which finding financial resources comes to a standstill and there is no choice but to rely on the issuance of government bonds, which results in passing the burden on to future generations.

The fact must not be forgotten that the current younger generations would have to pay the price themselves in the future, when they become older and will still be working.

In the first place, with the ¥1.03 million threshold, a worker’s take-home pay does not necessarily see a great decrease as their annual income increases. An initial tax rate of only 5% is imposed on the amount by which their annual income exceeds ¥1.03 million. It is a principle of taxation that the burden should be borne according to one’s ability as one’s income increases.

When annual income exceeds either ¥1.06 million or ¥1.3 million, workers are subject to social insurance premiums and their take-home pay is reduced. The case of the “¥1.03 million barrier” is different from that of these “social insurance barriers.”

As public interest in the expansion of the tax exemption grows, so does the number of defamatory comments on social media against the Finance Ministry, which puts importance on fiscal consolidation. Phrases such as “dismantle the Finance Ministry” are often seen.

It is worrisome if there is a growing social mood of avoiding tax burdens as much as possible.

The national budget is used for social security, defense and education, among other areas, so the public is asked to share the burden fairly.

Meanwhile, the three parties also agreed to abolish the provisional extra tax that is added to the gasoline tax. A simple abolition of the tax rate could hinder consumers’ awareness of the need to conserve energy, and it would also run counter to the trend toward decarbonization.

It is important to consider this issue while reviewing the entire automobile-related taxation system, including the gasoline tax, with an eye on the spread of electric vehicles.

(From The Yomiuri Shimbun, Dec. 13, 2024)