Friday, September 15, 2006

January 2007 another LDP tax increase

Just as the Japanese economy is back on its feet, once again the folks who destroyed several previous recoveries are looking to try it again. In January, the income tax break will end. It has been in place for several years. This is understandable. However, the marginal rate will shoot up from 37% to 40% AND the local tax, usually a fairly hefty tax, will also increase. Plus, we is gonna raise the 5% consumption tax soon. 10% is being kicked around.

From today, I am making sure that I keep ALL business-related receipts. No more being less than strict with that. You can bet that salaries won't increase with the tax increases. I already here people talk about working less to avoid higher taxes (those who can---often one has no choice, but if you are getting business income, you need to consider if that extra 1000 yen puts you into a higher tax bracket. If so, you won't see much of that 1000 yen.)

And the central bank is worrying about when to increase the interest rate. Put that on top of the tax increases, and business might lower borrowing (but remember, in Japan banks and lending and borrowing don't work that same as in the US or Britain etc) and then consumers will reduce spending and as borrowing decreases, business will suffer. Then we'll be back where we were.

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