Thursday, July 15, 2010

Ten long sentences

Richard Katz of The Oriental Economist, and Naomi Fink of UFJ Bank were asked to write five sentences in answer to two questions concerning Japan's national debt and its assets and and they responded with one of the most informative dialogs I have read on these topics. You can read this over at Shisaku, should anyone not have already done so.

One particularly interesting fact in the post---only because PM Kan had planned to cut Japan's corporate tax from the 40% current rate---is that only one-third of Japan's corporations pay any corporate taxes and the actual tax rate is closer to 26%.

The OECD has recommended lowering the tax while increasing the base (corps actually paying taxes) and in this OECD Observer article stated that increasing indirect taxes (eg consumption taxes) taxes has had a "less negative" effect on economies in OECD countries than increasing income taxes.

Anyhow, not directly connected to the Shisaku post, but maybe ol' Kan was close to being onto something before he got his head handed to him on Sunday. Perhaps if he had done a little better job of explaining his tax plans, and had any sense of timing, and had not assumed that his party was immune to what happened after the last two consumption tax increases, and had guessed that just because people may believe a tax increase is needed sometime in the future that it doesn't necessarily mean that they want one soon (i.e. while they are still living), and....well, let's just say that we might have been spared the spectacle of the LDP appearing to rise from the grave. They haven't really, of course, since when the sun comes back out, they'll realize that nobody believes they have an answer for anything and they'll sooner or later be heading back underground.

By the way, as usual with things economic, one can easily find an opposing point of view. Here is one concerning the wisdom of corporate tax cuts:

The conventional wisdom is that it is primarily small economies that feel compelled to cut corporate taxes in order to attract foreign investments–Ireland and a handful of the newest EU members are often put forward as examples of this–but it is actually some of the largest economies in the world that have lost most tax revenue from corporations over the last decades. Most notably, between 1970 and 2003, corporate taxation as a share of total taxation dropped by 51% in Japan and by 39% in the US and in Germany.

Yet at the same time corporate profits are booming and wages are stagnating. After-tax profits in the US are, as a proportion of GDP, at their highest in 75 years, and in the euro area and Japan they are also close to 25-year highs.

Wages, on the other hand, are making up an ever smaller part of national income, down from 68% in 1982 to 59% in 2005 in the 15 EU members. And at 56.9% in the US in 2005, they are, except for a brief period in 1997, at their lowest level since 1966. Kristian Weise, of The International Trade Union Confederation at OECD Observer

This wage stagnation thing seems somewhat familiar. Thank goodness for deflation.


  1. if you saw the economy of all countries, Japanese economy is so strong.They did lot of work on economy.they are succeeding also.

    Learn japanese

  2. I realize that the economy of Japan has recovered from the recession to a large degree in large part because of exports to China of which many are ultimately destined for the US as finished products. Do you think this will last?

    However, I am curious about the work that has been done on the economy. What are you referring to? How about the long term, it seems many Japanese are very worried about the future. Why?

  3. Let's see here. I'm no economist but I play one on the internet. Let's raise taxes on the consumer thereby reducing demand in the Japan. Then, let's lower taxes on large corporations. Where are they going to invest this extra cash? In Japan? Probably not. It's probably going to get sent to a developing country to build a new factory. Thereby accelerating the problem.

  4. Well, since we are now exporting Japanese to work overseas because non-Japanese cannot provide good enough service, it should be no problem to move a factory overseas. Talk about exporting unemployment.

    I have heard a few good arguments for reducing the corp. rates, some which I have no trouble believing. But somehow, I (and apparently most Japanese) do not look as these ideas as especially good right now. Don't understand why people are so reluctant to trust the good will of the government and large corporations though.