Gov't weighing income tax hike on wealthy to meet fiscal goal

No one is going like that either, not the wealthy, not the poor who think that one day they might become wealthy too and don't want to pay those high taxes.

But for top told-you-so-comedy

The government is particularly worried because a sales tax increase last year to 8% from 5% hurt the economy more than expected and helped trigger a mild recession.

"No one is going like that either, not the wealthy, not the poor who think that one day they might become wealthy too and don't want to pay those high taxes."

kibousha: The wealthy won't like it. I doubt the poor or middle class will lose sleep over it. BUT, don't again raise the sales tax which does hit the poor and middle class.

The government is particularly worried because a sales tax increase last year to 8% from 5% hurt the economy more than expected and helped trigger a mild recession.

It was only "more than expected" to those who are financially illiterate, a group which seems to include pretty much everybody in the Japanese government and the media. Raising the sales tax is the equivalent to using a shorter hose because you think it will give you more water. No additional revenue is raised, it is just collected quicker, and at a cost of a permanent loss of spending power and GDP.

Abe’s government wants to see how the economy performs after the sales tax rises to 10%

The economy will "perform" exactly the same way it performed when the tax was first introduced and the two times it was raised. A guaranteed recession coming in 2017.

Abe's class warfare is clearly aimed at the sinking middle and lower classes, thus the application of a regressive, across-the-board sales tax hike and changes to the national tax code that have benefited the wealthy. His government has also been busy handing out huge corporate welfare contracts and propping up the financial markets through QE purchases of stocks and moving the massive national pension fund to be a more active market player. Economic conditions in Japan will have to get a lot more dire for Abe's administration to seriously consider bowing before those who take an ever increasing share.

It is impossible to isolate a tax on any particular income group, rich or poor. The rich are the largest service providers and employers (the top 10% of income earners employ nearly half of all workers), if their tax is increased, they compensate by increasing the costs of their goods and services, and/or hiring fewer workers, or lowering wages. When taxes are increased on the poor, they respond by buying less, which means that the rich, and the people employed by the rich, make and sell fewer products, which decreases their income and wages. Tax increases on any part of the economy are passed on to every part of the economy. This is very fundamental economics, yet many people can't seem to grasp the prinicple.

If the top income earners have their tax raised by 5%, this cost is immediately passed on to other income groups in the form of higher prices or lower wages. If prices increase to the level which consumers are lo longer willing to pay, and wages fall to the level at which workers are no longer willing ro work for them, then outsourcing labor to other countries begins, just as we have seen over the past two or three decades.

Increasing taxes on the wealthy will have the exact same effect as the increase on the consumption tax, because, in the end, everyone will have to pay for it. The end result will be higher prices for all, which people will compensate for by buying less, and in the long run, the government will collect less revenue than before. The previous increase in the consumption tax cost the economy three yen for every one yen of extra revenue the government collected.

Brilliant idea! Tax more for promises made w/o fiscal foundation!

I wonder how many times this can be repeated before society erodes?

"If the top income earners have their tax raised by 5%, this cost is immediately passed on to other income groups in the form of higher prices or lower wages."

"Increasing taxes on the wealthy will have the exact same effect as the increase on the consumption tax, because, in the end, everyone will have to pay for it."

Can't agree with you. Who can best afford to pay sales tax on a car, let's say? A middle class or a wealthy person? And how can you be so assured that someone wealthy has the ability the pass on their added personal costs in the same exact proportion?

"....hurt the economy more than expected."

Well, I "expected" it. Although, when I stated this at the time, I only got "bad" ratings from the astute readers and posters on this forum, who have since made plenty of other predictions that haven't come true and never will. And they're the ones who routinely collect the "good" ratings. LOL.

Guess what, folks -- growth cuts debt. And you don't get growth when you raise everybody's cost of living in one feel swoop. Rather, you get decline.

Sangetsu - I understand your theory, but I think it has a fundamental flaw. For the employers/business owners, the bottom line is their profit. If an increase in price for their services/products leads to a drop in profits (not consumption, profits), then they will limit the degree to which the costs are increased. They are not going to simply increase the costs by the amount of the tax, simply because they are suddenly being taxed more. They will find the balance where they are still making the most profits, while keeping the lowest price.

More stupidity from the illustrious idiot brigade. Abe and his team of Keynesians failed Common Sense 101and never made progress since.

One trick pony: repeat same failed policies of raising taxes, increasing spending, and putting up obstacles for businesses. Geez.

One trick pony: repeat same failed policies of raising taxes, increasing spending, and putting up obstacles for businesses. Geez.

Japan is extremely pro-business, and has been for decades. But it essentially works out to top down economics, as they think that increasing profits to business will cause the businesses to increase salaries for their workers. But that has shown itself to not be true - companies make more money, but put it into savings, rather than passing the profits downwards.

Taxing the wealthy and the larger businesses will decrease the burden on the little people, giving them more spending power, so that they buy the products and services of the companies, which in turn will lead to more wealth for the rich. The bottom-up approach stimulates an economy and makes everyone money. The top down approach has been shown to be fundamentally flawed.

Prime Minister Shinzo Abe’s government plans to raise the nationwide sales tax to 10% from 8% in April 2017 to help pay for rising welfare and healthcare costs.

One problem with the sales tax in Japan is the multiplier effect that it has in terms of causing much higher consumer prices (I don't know if this is the same with consumption/VAT taxes in other countries), because it is taxes more than just retail sales.

For instance, when I provide a service to one of my customers (a business-to-business transaction), the sales tax amount is included in the transaction. That amount obviously gets passed down to the end-consumer at some point. So, the end-consumer ends up paying the 8% tax on the sale, plus the other hidden eight percents that accumulate down the supply chain.

This is one reason why consumer prices are so high in Japan, and also why companies tend to be vertically integrated (so that they can avoid extra tax on B2B transactions).

Only paid employees pay full whack in Japan. i know loads of folks who run their own businesses and are constantly engaged in scams to outfox the taxman. Can't ta ke a taxi or a meal with any of them without them asking fot the receipt, even if i pay......

According t Bill Still, that is the fate of every country whose finances are run by central banks. The solution is to take it out of their hands and put it back in the hands of the government. But by now it is too late because they own the government. Watch the documentary The Money Masters. It is long but it is the best history and economics class you will ever get. https://www.youtube.com/watch?v=iDtBSiI13fE

Counterproductive proposal. Targeting the wealthy for taxes increase will just accelerate their plans to emigrate to Malaysia, Singapore and New Zealand. Japan needs more rich people, so that there is more consumption, not less. It's the wealthy who will pay most of the tax because they consume more. If the poor need assistance due to the sales tax increase, adjust the income tax brackets etc instead.

But that's just choosing the poison. The true opposition has an opportunity to propose an alternative path for Japan.

Want a high tax, high government spending society? Vote for Abe's LDP, the Communist Party, etc.

The voting public needs a choice - want a low tax, low government spending society? Vote for the Ishin party.

The government will compile a stimulus package to offset the short-term impact on the economy when the sales tax rises to 10%, several sources said.

These useless stimulus packages contribute to the government having so much debt in the first place (although out-of-control social security spending is the main culprit). The solution to "too much debt" is not "more debt".

The government is particularly worried because a sales tax increase last year to 8% from 5% hurt the economy more than expected and helped trigger a mild recession.

A 3% sales tax increase, versus the government's policies which resulted in a massive 20-30% depreciation of the yen. Which harmed spending the most?

it also wants to make sure it meets its fiscal discipline target

A target that does not take the servicing costs for outstanding debts into consideration is not "fiscal discipline", anyway. It's "less worse fiscal indiscipline", but not "discipline" at all.

The demise of the big spending governments of Japan can not come soon enough.

Guess what, folks -- growth cuts debt. And you don't get growth when you raise everybody's cost of living in one feel swoop. Rather, you get decline.

Wow -- brilliant insight, you must have been paying attention when Clinton was President --

Besides the record-high surpluses and the record-low poverty rates, the economy could boast the longest economic expansion in history;

But exactly how do you get growth with a declining population, rapidly aging population and rapidly increasing social services costs?

just who are the "weathy" that they intend to target anyway? the highest tax bracket is about ￥18,000,000/year. is that weathy? government spending keeps growing which crowds out investment needed for growth. what really needs to happen is to cut the size of government but it'll never happen cause all the japanese people expect the government to take care of them.

What is being discussed here is redistribution. Obviously now there is maldistribution run through a debt creation scheme, a regressive tax system, an out-of-control financial management system and a legal framework that greatly benefits the wealthy. Rather than moving percentage points, if we want a more egalitarian economy and more democratic economy and less centralized economy then ownership of the means of production must change so that, as sangetsu03 notes, the top 10% of income earners DON'T employ nearly half of all workers and instead workers employ themselves through cooperatives and share in the profits. Mondragon corporation in Spain is a good example.

just who are the "weathy" that they intend to target anyway?

They say that people typically think "wealthy" is twice as much as they themselves have, so few do actually consider themselves as such.

But realistically, taxing the wealthy more alone clearly isn't the solution, given the simple math.

Income tax revenues are budgeted as about 15.8 trillion yen for the current fiscal year (ending today). The budget deficit - and I am honest and include debt servicing costs - is approaching 40 trillion yen. Even the "fiscal indiscipline" target of primary balance surplus needs another 14 trillion yen.

So to meet their relatively easier primary balance target, they only need to almost DOUBLE income tax revenues. Exactly how much tax will the "wealthy" need to pay in order to double income tax revenues? It should be obvious that virtually everyone needs to be considered wealthy if this is to work out.

Inheritance tax is even more ridiculous a proposition - it is budgeted to bring in only 1.7 trillion yen.

You might get a bit extra through soaking the rich, but the only sensible option involves cuts to out-of-control spending.

Yes, people will actually have to get by by themselves without government support. But I think the Japanese people as a whole can manage this. It just requires people to vote for policy reform.

Courtesy of Abe's trickle up economics insanity, many big Japanese companies are sitting on enormous cash piles which they have no intention of using to improve the lot of people here. The Government should be forcing firms to use or lose their vast cash hoards.

This is getting STUPID quickly! Let me tell you stupid J-govt WHERE the $$$$ is, its primarily in two places.

The taxes you ALREADY collect!! CUT SPENDING I could easily cut by 20-30% & free up piles of CA$H, no need to tax us pee'ons any more!

70% of companies NEVER PAY TAXES!!! For decades running!!

The above two can EASILY balance the budget, just put on your damned NIKE's & DO IT!!!

Enough taxing the people, they a MAXED OUT!!! Continue to tax us & not cut the massive waste & corruption & this country will go down the crapper faster than I ever imagined, this is lunacy!!!

You might get a bit extra through soaking the rich, but the only sensible option involves cuts to out-of-control spending.

Rich peoples' (and everybody else's) money IS the "out-of-control" spending. To the exact yen. If they think there is too much spending going on they are always free to write a big cheque and return their share of it. Otherwise they can just shut up.

oyatoi,

Courtesy of Abe's trickle up economics insanity, many big Japanese companies are sitting on enormous cash piles which they have no intention of using to improve the lot of people here. The Government should be forcing firms to use or lose their vast cash hoards.

Have you any examples of such confiscatory policies producing a great economy?

Your proposal is just an invitation for business to flee.

Look, if we want the companies to invest their cash it's simple - the business environment must be improved, so that investing the money would appear to promise the investors some decent returns. This is not some socialist banana republic, it's Japan we are talking about. Turning Japan completely into a Venezuela is the wrong approach, of that I am certain.

70% of companies NEVER PAY TAXES!!!

Sure would appreciate a larger explanation of this.

FizzBitMar. 31, 2015 - 12:25PM JST

Sure would appreciate a larger explanation of this.

In Japan companies only pay corporate tax on profits made, not business done. 70% of Japanese companies don't make a fiscal profit on business done in a financial year and thus don't pay any corporate tax.

Tokyo banks have not paid any Japanese corporate tax since 2000 and Toyota only started to pay Japanese corporate tax last year, since 2008.

70% of companies NEVER PAY TAXES!!!

My guess is that a lot of such businesses are probably set up for tax efficiency purposes. A company may make no money, but the operator will be paying him/herself (and spouse etc) a salary, and they pay income tax on that.

Pension reform needs to take place (later retirement age, larger contributions from permanent full-time housewives that expect to collect pensions for decades. Spending in general needs to be cut (mudanakouji, etc.). I haven't set my viewpoint on this one, but I like the higher property tax on places just kept unoccupied, when many would be willing to buy and live in/use them). Maybe this isn't popular with some groups but it seems like 70% of people in Japan are just stretched financially.

Gary Raynor: In Japan companies only pay corporate tax on profits made, not business done. 70% of Japanese companies don't make a fiscal profit on business done in a financial year and thus don't pay any corporate tax.

From my vague recollections, the way the USA's IRS gets around this for farmers, for example, is to have a rule something like: If you didn't make a profit in three of the last five years, you're a hobbyist, not in business, and can't use your farm for deductions on profits made in your other businesses.

http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

... The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Thanks Gary.

So any company, small or large, that incorporates itself don't have to pay unless a profit is shown?

If a company reinvests in R & D instead of showing a profit?

I wonder if any party addressing this loop hole in the coming elections. Probably the commies...lol.

Well, they are still paying sales taxes, so they are taxed. Sure would to hear some dirt on how corps avoid paying.

Sangetsu - I understand your theory, but I think it has a fundamental flaw. For the employers/business owners, the bottom line is their profit.

This is true, and businesses do what they have to do to maintain their profits. And it is good that businesses earn profits, higher profits equate to higher wages, and capital which can be reinvested in growth. Even if these businesses spend their profits on exotic cars or large homes, this spending provides jobs and income for other businesses and their workers. The rich are also heavy consumers, the top 10% of wage earners usually account for 35% of consumption. If taxation reduces profits, then of course wages are reduced, and there is less to reinvest in growth. And it is growth which creates jobs and income for workng people. Most business owners want their businesses to grow. For companies who earn a profit, their tax bill is generally higher than their payroll costs. Even you, as a working-class consumer will eventually see about half your income absorbed in taxes. According to a CBO study, about 70% of any increase on business tax is recouped through cutting labor costs, the remainder is passed on to consumers. If companies cannot earn a profit in a tax heavy environment, they will move to a place where the burden is lighter, or simply shut their doors.

70% of companies NEVER PAY TAXES!!!

This is true, and do you know why? Because for the last few years in Japan, 70% of Japanese companies have been classified as "loss-producing", meaning they have earned no profits to tax. This is no surprise as these companies are seeing less and less business as the population declines, and as increasing costs are causing people to consume less.

Some additional info. Japan already taxes its wealthiest (４千万円 and higher) at 55% (counting national and local), which is very high. Americans pay a max rate of 39% plus whatever your state is, 10% for California, 0 if you're in Texas. I'm already looking at retiring much earlier than I planned since I cannot be subject to 70% taxes (or whatever is coming) just because Japanese people like sexless marriages. I love Japan, but the minute they take more than half of what I work for, then threaten to take much more because they don't know the meaning of fiscal responsibility, I will do what I need to do for myself and my family. Japan is going to chase virtually all of its successful people to Singapore.

Fxgal, you're right, I believe only 30% of companies in our city are profitable, our company among them. A lot of companies only eek out a little profit, which they do mainly so the bank will keep lending them money. This is why Japan is now soaking individuals rather than companies. Remember that companies get to remove past losses against their tax bill, so if a company had a rough time over the past 5 years, it can now realize profits without paying taxes until those losses are cancelled.

fxgai: Have you any examples of such confiscatory policies producing a great economy?

I'm not saying confiscate. What I'm suggesting is much more vigorous encouragement to use the cash productively. The last thing we want is government putting their sticky fingers in the cash till and more "roads to nowhere" boondoggles. Policies that create a disincentive for cash hoarding and reward firms for productive investment and raising salaries are exactly what is needed.

sungetsu, 70% of companies do not pay taxes because 90% of companies are small to mid sized companies. These companies do not want to make a profit. I an the owner of a company of exactly 2 employees, including myself. For the past couple of years, I was dutifully paying my taxes which were breaking my back. This year I hired a new accountant and my taxes will be more than halved. I did not realize there were so many (legal) ways to reduce my taxes.

What I'm suggesting is much more vigorous encouragement to use the cash productively.

OK, that's not outright confiscation, but it does sound like a step in that direction. Rather than put the blame on the companies for not investing in a crappy business environment, I'd much rather the government blame itself for the crappy environment it presides over, and then do something about it. (Or see the voters instigate as much.)

Then you won't just have your existing companies starting to invest to take advantage, you'll have more overseas players coming here to try to enjoy the environment as well. As others have pointed at, Japan has enough headwinds with the population dynamics without government chaining businesses hands and feet together as well. It needs to be much better than the global average.

Policies that create a disincentive for cash hoarding and reward firms for productive investment and raising salaries are exactly what is needed.

To my mind, government can not engineer such outcomes on a sustainable basis. Less bureaucracy, more economy. If the economy gets better, salaries will take care of themselves due to market forces of supply and demand. Putting the cart before the horse might work for a while, but not forever.

sungetsu, 70% of companies do not pay taxes because 90% of companies are small to mid sized companies. These companies do not want to make a profit

What a world we live in when companies don't want to make a profit. Perhaps they don't see any point if trying to earn a profit when so much of it gets taken away. They take the risks, do the work, and then have to give up much of the fruits of their labor. And it taxes are increased, things will only get worse. What will the poor do when there are no more rich to tax? Who will bother to create businesses and jobs when there is no chance of earning a profit? Reducing the number of wealthy does not reduce the number of poor people, the opposite is true.

The economy is a pool, and the pool is filled with assets (money). The rich are in the deep end of the pool, the poor are in the shallow end. If you go to the deep end of the pool, and remove a bucket of water, does the water level decrease only at the deep end? Of course not, the level of the entire pool decreases equally. Taxing higher income earners has the exact same effect, the cost is eventually distributed to every part of the economy. It is this simple. Anyone who tells you otherwise is either a liar (a politician), or a fool (a person who believes and votes for such a politician).

If your own tax is increased, and you earn less, what do you do? You spend less. And when you spend less, the companies you buy things from earn less money. When they earn less money, they have less money to buy goods and materials, so the people who work to supply these get less money. The company itself has less money to spend on it's own workers. It must find a way to compensate for the reduced consumption, it may freeze hiring, reduce wages, cut staff, or move overseas. The cost of your tax increase is immediately felt by the rest of the economy.

Can any post-industrial first world nation ever be able to sustain itself without massive debt? Reality says no. The decrease in population is normal. Too bad the J government is still living in the 80's.

They want a balanced budget so they can increase spending. It's the opposite of the "starve the beast" strategy.

What will a stimulus package be?

Policies that create a disincentive for cash hoarding and reward firms for productive investment and raising salaries are exactly what is needed.

Which companies are "hoarding" cash? If you are one of those ill-informed people who believe the news stories about companies "sitting in record piles of cash", you should read the fine print. Where do you think all of the QE money printed out by the government recently has gone? Relative to the amount of money which exists in the economy, companies aren't holding on to more money than they ever have. If the amount of cash in the system has been increased 20%, companies will be holding 20% more money than they did before. The money which the government has printed out over the past year or so has been loaned from the central bank to the private banks, which in turn have loaned out the money to businesses, businesses have used this money to buy up stocks, causing the recent doubling of stock prices. Consumers at ground level have not seen any QE-related inflation yet, but the stock market certainly has. When the stock bubble bursts, the inflationary effects the government was trying to create at the consumer level is likely to hit consumers in a large wave.

Companies already have an incentive not to hold onto money, and that incentive is to try to invest said money to earn a return on it. No company holds onto cash if they can help it. Money which is not being used might as well not exist. But companies are not foolish (most of them), they are not going to spend or invest their money in anything which will not give them a positive return. The demographics of Japan being what they are, I can't blame them for not investing their money here. And more than a few companies are well aware that stocks are overvalued, they are going to hold onto a fair amount of cash for when the next bubble bursts, which it eventaully must. I hope not everyone here has all their savings in yen.

What will a stimulus package be?

Another nail in the coffin.

Just curious, but is the sales tax applied to food, clothing, and housing as well?

Just curious, but is the sales tax applied to food, clothing, and housing as well?

It is applied to just about everything. Food, medicine, doctor visits, postage stamps, and the rent companies pay. It is also applied to road tolls, gasoline, etc. etc. In some cases, the tax is charged at more than one transaction level, so it's effect is multiplied.

The above post is factually incorrect. Sales tax is not applicable to Prescription medicine and land, not to mention online auction sales.

Prime Minister Shinzo Abe’s government plans to raise the nationwide sales tax to 10% from 8% in April 2017 to help pay for rising welfare and healthcare costs.

Except the last increase - 1 year ago to the day - permitted businesses to round up their prices a little. Few limited the tz increase to strictly 8 percent, and that's what will happen when the next increase happens

You work hard to become successful than the Govt comes in penalize you with unfair higher tax rate... Totally unjust and discriminatory, no Govt should punish those who become successful and wealthy.