This tax increase plan will hamper the country's economic recovery -- Akahata editorial, February 5

There was a time when the government and the Bank of Japan argued that larger corporate profits will help increase the household income by using an analogy of a dam in the upper reaches of a river supplying water to the lower reaches.

In fact, people's wallets are getting thinner in sharp contrast to the larger corporations which made as high profits as in the bubble years by taking advantage of the IT bubble a few years ago, continuing to break records.

The 'dam' logic dies twice

The Koizumi Cabinet repeatedly uses this logic of a "dam." In the House of Councilors, asked about the impact of shifting an extra 7-trilion yen burden onto people through abolishing or scaling down the fixed-rate tax cuts, Prime Minister Koizumi Jun'ichiro answered, "With the corporate sector continuing to grow, business recovery will have ripple effect on the household economy through improved employment and income environments."

At the House of Representative Budget Committee meeting on February 3, Japanese Communist Party Executive Committee Chair Shii Kazuo criticized the prime minister's views by citing a Cabinet Office report published late last year.

Larger corporate profits meant higher wages for workers until the mid 1990s. "Since 1995, an inverse correlation has become predominant," said the Cabinet Office report on Japan's economy in 2004. "Inverse correlation" means that workers' wages decrease while corporate profits increase. This shows that the Cabinet Office has testified that the argument that an increase in corporate earnings will have a ripple effect on the household economy has been untenable since more than a decade ago.

Even when the "dam" logic was emphasized in 2000, the Economic Planning Agency at the time stated in its "Current State of the Japanese Economy" that there is a bipolarization between corporations and households in terms of recovery.

No doubt the household economy cannot benefit because the water level of the dam is maintained with the water siphoned from the households. The "dam" logic, so to speak, has been buried twice by the government itself.

As Shii pointed out, large corporations have increased their profits by 15 trillion yen since the late 1990s while household incomes have decreased by the same amount, and companies are continuing to hold down workers' wages.

Defending large corporations, Prime Minister Koizumi said, "I hope (corporations) will have a positive effect on personal incomes." How outrageous it is to increase taxes based on such wishful thinking. Takenaka Heizo, state minister in charge of economic and fiscal policy, stated that personal incomes will increase. He also said that more time is needed to adjust the share of labor costs in value added, indicating that wages will continue to be restrained. His statement is utter nonsense.

Koizumi and Takenaka do not see the reality. Japan's economy is now undergoing the biggest change since the late 1990s.

Bank of Japan data show that the household economy used to accumulate savings while companies were borrowing money. However, companies began to have an "excess of funds" in 1998, and households experienced "budget shortfalls" in 2003 for the first time since the Bank of Japan started the survey.

Major tax increase is reckless

Corporations have held down household incomes by restraining job openings and wages. The government has taken money away from households by increasing taxes and keeping interest rates near zero, resulting in the historical change in the flow of funds.

A member of the government Tax Commission said that corporate taxes must be raised in order to bring money back to households. It is reckless to impose a major tax increase on the people at this point. (end)




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