Prime Minister Ishiba and other mainstream LDP lawmakers unfailingly repeat the mantra that “the consumption tax is a stable revenue source for social security” whenever the topic of tax cuts arises. It is perhaps unavoidable that the general public might accept this at face value—I once did as well. However, this is a fundamentally flawed perspective that contradicts elementary economic principles.
1. Ignoring the “Built-in Stabilizer”
In macroeconomics, there is a fundamental concept known as the “Built-in Stabilizer” (Automatic Stabilizer). Anyone who has studied social sciences at the university level should be familiar with it.
Under progressive taxation for income and corporate taxes, tax revenues naturally decrease during a recession and increase during a boom. This mechanism stabilizes economic growth by providing a tax-cut effect during downturns to support the economy and a tax-increase effect during booms to prevent overheating.
In contrast, the consumption tax rate remains constant regardless of economic conditions, making it relatively immune to fluctuations. While fiscal hawks praise this as “stability,” from a macroeconomic perspective, it means the tax lacks a built-in stabilizer. To put it bluntly, it is a “bad tax” that prolongs both recessions and periods of overheating.
2. What Needs Stabilizing is People’s Lives, Not Tax Revenue
Even without the concept of built-in stabilizers, the government can issue bonds. Therefore, there is zero necessity for “stable” tax revenue in the first place.
During a recession, it is the lives of the citizens that suffer. There is absolutely no justification for extracting consumption tax from the public at the same rate as during a boom. On the contrary, launching economic stimulus through bond issuance rather than relying on tax revenue would end a recession faster. This, in turn, would stabilize average tax revenues over the medium to long term. I fail to see any logic in obsessing over tax revenue for a single fiscal year during a slump.
In my view, the LDP’s arguments are utterly foolish. It gives the impression that they are focused solely on tax collection because the process of “taking from and redistributing to” the public creates opportunities for vested interests and organizational votes. Furthermore, the “old media” is failing in its duty. Why can they not challenge the LDP on this? The points I’ve raised here are textbook-level economics; every reporter in a business department should know them.
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