Income Tax Cuts: Doubts about Both Significance, Effectiveness Cannot Be Dispelled

Editorial

16:30 JST, October 25, 2023

It is important to support the public who are suffering from the high cost of living, but there is doubt over whether it is necessary to uniformly implement income tax cuts, including for high-income earners. The significance and effectiveness of such tax cuts are questionable. Prime Minister Fumio Kishida needs to provide a thorough explanation.

Following the prime minister’s directive to senior officials of the Liberal Democratic Party and junior coalition party Komeito to consider income tax cuts to counter high prices, the LDP’s Research Commission on the Tax System has begun discussions. By the end of the year, the size and duration of the tax cuts, as well as the source of funding, will be decided.

There are two types of tax cuts: fixed-rate cuts, which deduct a certain percentage from the tax, and fixed-amount cuts, which deduct a certain amount from the tax. Since higher income taxpayers will benefit from fixed-rate cuts, the fixed-amount tax cut is expected to be used in this case. The tax cut is expected to be implemented for one year in the next fiscal year.

In addition, the tax cut will not benefit those with low incomes who do not pay taxes. Therefore, the government plans to include a cash provision program to low-income earners in the economic stimulus package to be compiled in early November, and to implement the program together with the tax cuts.

However, one-year tax cuts and one-off benefits are only a stopgap. Some observers say that the tax cuts and benefits will only result in people saving their money.

Since the tax cuts will require legislative revisions, they are expected to be implemented next spring at the earliest. Though it is a measure against high prices, it will not have an immediate effect.

The prime minister has said that the income tax cuts are intended to return to the people a portion of the increased tax revenues that exceeded the initial projection. But with the current situation in which the state’s revenue is significantly lower than expenditures and the gap is covered with government bonds, there are likely no excess funds.

It is only logical that the portion of tax revenues that exceeded projections should be used to repay the debts. It must not be forgotten that the government, while claiming to return funds to the people, is in fact simply postponing the repayment of debts to the future.

Meanwhile, the government has decided on a plan to increase corporate, income and tobacco taxes to secure financial resources to enhance the nation’s defense capabilities. Although the plan is expected to be implemented in fiscal 2025 or later, tax cuts and tax increases will be carried out over a short period of time.

The prime minister’s key policy of “extraordinary measures to combat the declining birth rate” will also require a huge amount of financial resources, but this debate is still pending.

It would be grossly inconsistent to cut taxes in a situation where it is unavoidable to consider increasing the burden on the public.

Kishida is reportedly concerned about the public’s perception that he is pushing for tax increases to secure financial resources for policies such as enhancing defense capabilities. If the prime minister’s recent directive to cut taxes is intended to dispel this image, it can only be said that he is missing the point.

With fiscal deterioration progressing and an aging population, public anxiety about the future is high. The prime minister needs to present an overall picture of his policies to talk about what will benefit the people, rather than merely making an impromptu attempt to gain popularity.

(From The Yomiuri Shimbun, Oct. 25, 2023)