Annual Income Thresholds: Discuss Tax And Social Security Together

Editorial

16:19 JST, November 20, 2024

Many people hold back on increasing their working hours because if their income increases, they will be required to shoulder tax or social security burdens and their take-home pay will decrease. 

With labor shortages becoming more serious, holding back on working hours can be considered a loss to society. The government should not only review the tax and social security systems as a whole, but also implement remedial measures, including changes to how the burdens should be borne. 

The ruling Liberal Democratic Party, its coalition partner Komeito and the opposition Democratic Party for the People have begun discussions on reviewing the “¥1.03 million barrier,” which refers to the imposition of income tax on annual income exceeding ¥1.03 million for part-time and other workers. The aim is to raise the threshold for taxable annual income and increase effective take-home pay. 

In the past, the taxable income threshold was raised in line with changes in prices, but during the last 30 years of deflation, it has remained unchanged. In light of the current situation in which prices are rising, it can be said that there is a need to raise the threshold. 

The problem is deciding how much the increase will be. The DPFP is calling for raising the threshold from the current ¥1.03 million to ¥1.78 million. In that case, it is estimated that tax revenues for the central and local governments would be reduced by an amount exceeding ¥7 trillion. The ruling parties are cautious about raising the threshold significantly because of the large fiscal impact. 

The DPFP says that financial resources to compensate for raising the tax exemption is something that the central government should think about. 

However, both the central and local governments remain in dire fiscal straits. What does the DPFP think should be done to make up for the decrease in tax revenues resulting from the increase in the taxable income  threshold? The attitude of the DPFP, leaving the issue of financial resources up to the central government, is irresponsible. 

“Annual income barriers” are not limited to the ¥1.03 million threshold in the tax system. 

For part-timers who work 20 hours or more per week at companies with 51 or more employees, if their annual income exceeds ¥1.06 million, they are disqualified from being recognized as dependents of their spouses and are required to join employee pension and health insurance programs. For workers at companies with 50 or fewer employees, the threshold at which they are disqualified from being recognized as dependents of their spouses is ¥1.3 million. 

The Health, Labor and Welfare Ministry is considering eliminating this “¥1.06 million barrier.” If that happens, the number of employees enrolled in the employee pension system is expected to increase by 2 million. The apparent aim is to stabilize pension financing. 

On the other hand, as these workers will have to begin paying social insurance premiums, their take-home pay will decrease. They will have the advantage of receiving larger pension benefits in the future, but there is strong opposition to putting the burden on them in the present. 

In addition, under the employee pension system, premium payments are shared equally by labor and management. As the ministry is proposing raising the proportional burden on companies, there are opposing views from groups of small and midsize businesses and other entities. 

The government needs to discuss the issues that accompany revising the “annual income barriers” from a comprehensive perspective.  

(From The Yomiuri Shimbun, Nov. 20, 2024)