When We Know What the Tax Should Be, the Problem Is Easy
October 25, 2011
¡ What is clear already
Although I believe that the government has to do less (much, much less) than what it is doing now, what it does have to do - and even if it is not the only function it has to shoulder, it is one of a very few indeed - is to lessen the gap inevitably appearing or expanding in our society. There are several ways to do it, and one of them is taxation*. I am not necessarily against consumption tax increase, but I feel that the main measure would be to impose progressive taxation on income and wealth with income tax and inheritance tax, and that Japan (although it is not alone here) has over several decades reduced the functionality of its government in this aspect, and also reduced tax revenues. What is weak now is the function of the so-called eredistributionf. (The trial calculation of the tax revenue, which can be expected if the tax rate of income tax is restored to what it has been in 1989, can be found in the book Repairing the Tax introduced above in the section by Shinji Murakami.)
I do not stand against the idea of reduction of what is called ewaste of moneyf, which, by definition itself, is not something good, but I feel that there is a need to do some level-headed thinking about how much can really be done by it, and, at the same time, that we ought to give some thought to things which are not (or may not be) waste per se, but could still be easily forfeited in the chorus demanding a pursuit of reductions. And if people do not feel very enthusiastic about such drastic measures as tax increase or, rather, reinforcement of progressive taxation, we can do something milder first and restore the tax rate to what it has been some time ago.
As I already covered the reasons that were used in the process of weakening the progressiveness of the tax as well as the discussions which were made regarding these reasons in the texts referred to above, here I will skip them. And although some of the reasons given at the time were not entirely erroneous, if we give them even a little thought, it gets very clear that what my (or, better say, our) assertion is certainly much more reasonable. Also, even under the rule of the Liberal Democratic Party, which has been supporting the weakening of the distributive function of the government for several decades during its one-party rule, at the very end of its reign, the so-called Government's Tax System Study Council started to voice the need for revival and reinforcement of the function of direct tax. After the change of government, for a while there were some initiatives to alter the way tax-related system is organized, motions towards cardinal tax reform. But gradually these motions - although I do not really understand the circumstances behind it - strayed from their course and started, so to speak, to wander in confusion, which is the state of affairs now. As I think, the circumstances, which resulted in it, should in due course be analyzed and reported by those, whose duty it is to do so, but even those of us who do not know the political world, etc. in detail can say that we need to get our basics straight ? and when I say estraightf I do mean straight. (One more thing: there is quite a lot of talk going on in the eacademic circlesf by proponents of a bold idea that there can be no justification for collection of corporate tax, but this idea also does not withstand even a superfluous scrutiny. The question of whether the current system is good or not aside, there is more than ample justification for corporate tax. And this is also available in Repairing the Tax.)
* My point of view is that in addition to taxation, this gap should also be shortened by division of labor and products made. I have touched on this point briefly in the opening of Equality of Freedom (Iwanami Shoten, 2004), and in more detail in Basic Income: Possibility of the Minimal State that Distributesiwith Taku Saito, Seidosha, 2010j, Chapter 3 Income (re)distribution is not the only option or The Human Condition (2010, presently published by East Press), Section XII Dividing materials and jobs ? by the way, this book has kana printed alongside Chinese characters, so it can be read by anyone who can read hiragana.
¡ eConcernsf regarding economy
Of course, the points made above do no apply to increase of taxes in general. However, what is necessary is to increase tax revenues based on the above understanding. But as soon as we make such assertion, we are instantly showered with criticism and told of impending edeteriorationf or eslowdownf of economy that such measures will esurelyf trigger. People suppose that taxation has adverse effects on consumption and production. Some even come up with trial calculations and figures made by Mr. This and Ms. That showing how tough such effects will be. I will not go as far as to say all of these are fakes. However, the results depend on what kind of assumptions these calculations are based on. Let me (us) - for starters - just try and think in plain terms along the lines we feel are fair.
It is said that tax increase dulls consumption and production. The possibility is not nonexistent. But, first and foremost, this fact has never been proven ? neither theoretically nor empirically. Also, for many people - no matter whether they think it good or bad - labor (and labor time) is not something they can change at their discretion. It is also said - and this is the second of the just two ereasonsf that have been given against tax increase for several decades now - that the larger the taxes, the lower the workers' work incentive, but people who want more money at hand may start working even more to earn more money. These points indicate a possibility that tax increase will not affect the production aspect of the discussion.
And even if there is a possibility that consumption will decrease as the take-home pay decreases, it is merely, and I cannot overstress it, one side of the issue. Why? Because the part that has been levied as tax is not at all thrown away. If this money is used in the way we believe it should be used, it mainly goes directly to the people. What kind of people? First of all, it goes to those who cannot work even if they want to, those, whose income is low, those, who cannot spend money even if they want to - including those, who found themselves in such straits due to the recent earthquake and nuclear accident. In case of people with means, a large amount of the money they have at their disposal does not get spent, but when money goes to the needy, it leaves their hands in no time. And to satisfy this demand, products are made and production increases.
Naturally, at the same time, there are people, who are now working and earning - but not much. Well, will these people when some part of the taxes is distributed to them loose their work incentives and start working less? My point of view is that if people, who have no choice but to engage in underpaid labor, somehow manage to quit, this is more than reasonable a move, and although I will not go into detail discussing the rights and wrongs of this position, I would think that many of such people - unless a system is adopted, whereby no matter how much more you earn, this additional pay is taken from you (and this would, in fact, in some cases, reduce the work incentive) - still continue to work, and if, notwithstanding their efforts, they still lack some money for their daily lives, and this lacking part is granted to them as benefits, they would spend the money thus received, and things would be produced to accommodate this demand.
I mentioned earlier that the government should do but a few things, and one more thing that I would add to these few is granting ? according to the needs ? benefits to people, who due to their physical or mental situation, or as a result of disasters they have experienced, need more nursing care, medical care, and other such services than others. These benefits will be put to good use, giving people a chance to engage in useful work, at the same time allowing them a (larger) income, and - eventually - get spent too. After the recent earthquake, there has been a lot of praise for local people's self-supporting efforts as well as for volunteer activities. Both more that deserve such praise. However, I believe that these activities, as well as all work done to help those who need to live in more difficult situation than before in places damaged by the disaster, or those who moved to other places to escape from radiation, all work done to make their lives better has to be paid for by tax revenues. This will directly and immediately contribute to erevivalf - giving some substance to this often empty slogan.
And if we think in these simple terms - although I am not a proponent of market centricity, and here I will not get into detail explaining why, because I have done so elsewhere - we can safely say that redistribution based on taxes will not adversely affect the economy. It is that simple. With tax collection, the society never loses anything. Tax - and when we put it that way, no one will be able to dispute it - is first and foremost simply movement of wealth, which, in the process of such movement, does not at all decrease. The important thing is how the wealth is moved, and what we have to be very careful about is making no mistakes when moving wealth ? that is, when using money levied as taxes.
¡ Scope of collection and division should essentially cover the whole world.
The reader so far has probably got an impression that all of the above refers to just one country as a unit and this is only natural. However - and I have grown tired repeating and explaining it - I believe that as a unit of division for tax collection, country is too small. Under normal conditions, the unit should be the whole world, the whole of our earth. (And this does not mean that we must immediately start building a world government. Even without it, there are many ways to make a global tax system work. First of all - although it is undoubtedly quite a feat to perform - we need to come to some sort of an agreement. And as for the way to collect taxes, there are already a number of proposals made, one of which is a proposal by Pogge introduced below.)
The main reason the unit should be the world is that when we think in global terms, there is an enormous gap between the rich and the poor, there is some truly stupendous poverty. And because no matter how much we try to come up with a sound reason that would justify this poverty, we, well, can't. There is a good term for this issue ? eglobal justicef, and I myself by chance was blessed with an opportunity to help with the Japanese publication of one of the most representative work propagating this term, that is, Thomas Pogge's World Poverty and Human Rights: Cosmopolitan Responsibilities and Reforms (2nd. ed. of the original published in 2008, Japanese translation in 2000 from Seikatsushoin). (Pogge believes that we can substantially improve the situation of the poorest of the poor without bearing as large a burden as most people would imagine needed. And, well, so far so good. But shouldn't we go even further? I believe that, logically speaking, we should. Through an interpreter, I asked the author of the book about it - the author was born in Germany and emigrated to the U.S. - and, as far as I remember, he said that yes, he understands it perfectly, but the book was intended for readers in the U.S. and similar countries, which is why he let it lay there. I have set forth my thoughts on this subject in the postscript of the book.)
One more point worth making is that if we limit the unit for tax collection and division of tax revenues to country but allow movement between such units - and basically this is the way it should be - there will be people and organizations moving to places with low tax rates, there will be an inflow of people into places with higher payments, and as a result of these, there will be mutual supervision of taxes and tax rates, there will be price competition, there will also be restrictions on payments and, even more often, restrictions on inflow of people. This outflow of people and organizations is one of the prominent two reasons given by the proponents of tax reduction.
But how much effect would that amount to? For people, especially when the cultural and language difference is large, it is not at all easy to switch from one nationality to another. Also, we can create the necessary policies restricting nominal movement, and some measures in this direction have already been implemented. The problem is the balance. Let us say we increased the tax on the rich. There will be some people leaving resulting in a certain decrease of tax revenue, and one point of view would be that there is no problem if the money lost this way is less than the tax revenues from those remaining. Also, most countries have for a long time now been having a hard time dealing with nominal movements and relocations of both organizations and individuals to the so-called 'tax havens', that is, places with low tax rates, and - as ultimately only these individuals, organizations, and a very limited number of countries and regions benefit from it - there have been a certain level of measures to restrict such movement.
Therefore, before believing that if we increase taxes, the rich will run away, we need to take a close look at how substantial the actual effect would be, and also understand that it is not as if there is nothing we can do about it. That is one thing that can surely be said about the problem. But, no matter what these measures would be, this will not make the problem go away.
One more thing - and this is also easily understood: the same thing applies to decentralization of authority. Many organizations and individuals including the left-wingers, who dislike state (power), and including the Committee of Experts on Tax Commission established during the Democratic Party rule - although I really doubt that it is still functioning or, rather, whether anyone still listens to what it has to say - and its Chairman Naohiko Jinno say that decentralization of authority is a good thing. I also think that this opinion has a point. However, if we restrict decentralization of authority to the above scope, clearly there is a limit to what can be done by it. In plain terms, there are rich areas and areas not so rich, and it is when we recognize this difference the need for adjustment arises, but there are no ideas worth mentioning when we ask how such decentralization should be made and no real foundations for it. For example, there is a tremendous difference between social services people of the same disability are entitled to in different areas. This does not seem reasonable at all. But the way it is now, no one seems to have a problem about it. Those needing such services gather in the areas with a higher level of services available, and, as a result, government does - although not often - deal with them with a heavy hand.
I do not think that this problem will go away if we merely move the money. But even so, we need to at the very least move it and make it as large a movement as possible. When we talk about ehometown taxesf and eregional currencyf without thinking of this issue properly, it is simply futile. I think that all the points made by those who see the future only in this direction are but lamentable. It is especially true about the eleft-wingersf who advocated einternationalismf, who in their own declaration stated estrong progressive taxationf as the second (even if it was for the time being) target of their struggle. What are they thinking about?
They say that each person should live as he or she wants, in his or her place and region - and, well, yes, so far, so good. This is only natural. But to achieve this very natural goal (as well as for other purposes) what we need is to collect taxes from larger areas and then divide them. This point has to be understood (and is discussed at length in Chapter 4 Outflow, Section 10 Decentralization of Authority of Repairing the Tax.)