Posted by ampontan on Thursday, July 29, 2010
The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could be safely trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
- Adam Smith
A COMMITTEE OF EXPERTS in the Cabinet Office’s Tax Commission released on 22 June an interim report on amending the tax code. The commission is under the direction of Finance Minister Noda Yoshihiko, and its offices are located in the Budget Bureau of the Finance Ministry (i.e., the control tower of the Japanese administrative state). The report is calling for tax increases—in a deflationary period—and justify them this way:
It is an important task to arrest the spread and the growing permanence of income gaps in order to realize a society in which the people can live with peace of mind. Therefore, it is an important task to restore the redistribution function of the tax code in conjunction with the social security system…To achieve this, it will be necessary to implement reforms that return to the progressive structure of taxation for income and assets, and restore the redistribution function of the tax code.
Every word of this is horse feathers, including the “a”s, “and”s and “the”s. This is not a country in which people are dying of malnutrition in the gutter while toffs in top hats and tails laugh and look the other way. Though that comic book vision may have informed the politics of many DPJers when they were younger, they’re much more comfortable nowadays in karaoke sing-alongs with the background music provided by a television commentariat plucking the heart strings to play variations on a theme of income gaps and society’s weaklings.
Income taxes in this country are neither particularly low nor unfair. The top rate is 40%, equivalent to that in Britain and France, and higher than the current 35% in the United States. If local taxes are factored in, the highest rate climbs to 50%.
In any event, it is not the business of government to take upon itself the adjustment of any income gaps based on proper economic activity, nor would it be possible to do so, considering the eternal gaps among individuals and the groups they form in effort, abilities, and intelligence—all of which are evident as early as grade school. It’s even possible to observe the behavior of teenagers in a shopping mall to get a rough guide as to which end of the gap they’ll wind up on in adulthood. Which kids are browsing software and computers, and which kids are spending their time and their dimes in video game centers?
The only business of government is to see that economic activity is conducted honestly and within a legal structure that minimizes group privilege. Well, that, and to incorporate into their thinking consideration of events overseas, such as the reasons the Berlin Wall no longer exists, and why most of the countries that were on the eastern side of it have moved to flat or flatter taxes and away from the failures of the “income distribution function”.
Here’s how they’re planning to go after assets:
While financial assets are concentrated among the elderly, the income of young people is declining. Therefore, it is important to redistribute (those assets) between the groups…From the perspective of correcting these income gaps, the objective of tax reform for FY 2011 should be to expand the base of taxation by lowering the basic deduction for the inheritance tax and reexamine (i.e., change) the structure of tax rates.
Individual assets in Japan total roughly JPY 1,450 trillion, about 75% of which are held by people over 50. If the penalties for passing along one’s assets to one’s heirs are removed, as happened recently in Switzerland, Italy, Sweden, Canada, Australia, and New Zealand when those countries eliminated the inheritance tax, it is redistributed to the younger generation naturally.
According to the Economic White Paper for Small and Medium-Sized Business Enterprises of 2006, 70,000 of these companies go out of business each year—and an estimated 200,000 to 350,000 people find themselves without a job. The primary reason is that these businesses can’t be passed on to a younger generation, even if the younger generation wanted them (or decided to accept them and sell them to someone who did). The inheritance taxes are already so high they’d have to liquidate the assets of the business to pay them.
Now, the DPJ government wants to make that worse, all to provide for equality of result rather than equality of opportunity.
What has gone unremarked in Japan is the sheer arrogance required to claim that the old must have their assets redistributed, like it or not, to the young, and that anyone in government is capable of efficiently handling this task. Were not those assets accumulated by people to provide for themselves in old age? Are the eternal virtues of diligence and thrift to be nullified by political fiat and replaced by an airy, vague assurance that the government will probably take care of them too?
When Mr. Noda was deputy finance minister, he told a business magazine:
I’ve thought there must be no move to deny individual assets in a country based on liberty. If the assets created over three generations disappear, wouldn’t that be because individual assets were confiscated?
Even some people in the economically dimwitted Obama administration in the United States understand this. Christina D. Romer, the Chair of the Council of Economic Advisers, and her husband David H. Romer of the UC Berkeley Department of Economics recently published The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.
Here’s an excerpt from the abstract:
This paper investigates the impact of tax changes on economic activity…The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.
Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by nearly 3 percent. The effect is highly significant.
Of course Mr. Obama will ignore it, as will the DPJ and the Japanese Finance Ministry. Empirically based economic policy is not the forté of politicos on the left, and they share with the bureaucrats a taste for scenarios involving secular political divinities with themselves in the lead role. Why be a bureaucrat or politician if you don’t have manna-money to spread around?
The Japanese thought the 1990s were 10 lost years. If the DPJ working with the Finance Ministry has its way, they’ll be losing a lot more than a decade this time.