[paper] Background on the Confusion in the Taxation Reform Discussion

Keimei Kaizuka: Professor at Chuo University

Keimei Kaizuka was born in 1934. He graduated from the Economics Department of the University of Tokyo, and completed the Doctoral Course at the Graduate School of Social Science at the same university. He served as a professor for the Economics Department at the University of Tokyo, before assuming his current position as a professor for the Law Department at Chuo University and emeritus professor of the University of Tokyo. His published works include Zaisei Shishutsu No Keizai Bunseki (Economic Analysis of Fiscal Expenditure) and Nihon No Zaisei Kin’yuu (Finances of Japan).

Recent discussion for taxation reform has been thrown into chaos. The background of this situation is very confusing, and the fact that the Prime Minister’s Official Residence and the Cabinet Office are trying to change the process of the ministries-led way of policymaking is having a potential but significant impact on the matter. Also, becoming more dominant are the ideas that policymaking must be done at the initiative of politicians and the role of bureaucracy shall be diminished. Thus, it is unclear who will be in charge of the actual policymaking, and there is a danger that a vacuum is being generated here. The process of decision-making for taxation reform is also vulnerable to this impact, so the gap between the intention of the Tax Research Commission and the Tax Commission of parties, who want to maintain the conventional way of decision-making for policies, and the changed process of decision-making on policies is inviting the confusion currently surrounding the discussion. The purpose of taxation reform depends on which of the desirable taxation system’s fulfillment requirements is declared to be the most important. Recently, the Tax Research Commission and the Council on Economic and Fiscal Policy disputed over whether neutrality or vitality was the appropriate principle. Although this dispute is considered to be rather unproductive since it is about the interpretation of the word, it does reflect a gap in the awareness of issues between the Tax Research Commission and the Council on Economic and Fiscal Policy. Neutrality had been used to mean neutrality towards business activity in the private sector. However, in reality, it is impossible for a taxation system to be entirely neutral, so it is commonsense in the field of tax theory that in some way it biases business activity in the private sector. In this way of thinking, achieving the principle of neutrality should only have second priority. Interpretation of the specific contents of vitality also varies widely. The author thinks that, considering the serious state of the current Japanese economy, the most important task for this economy is to get out of this stagnation and to maintain a certain level of economic growth for the middle and long term. In this sense, the current state of Japanese economy is somewhat similar to that of the U.S. economy in the 1980s. In brief, the task of taxation reform on a middle- to long-term basis is merely an attempt to achieve economic growth