The Japanese Communist Party (JCP) recently released its manifesto for the House of Councillors election. While the party has consistently maintained an oppositional stance toward the consumption tax, this site does not categorize them as part of the “pro-expansionary fiscal policy” (積極財政) camp. I would like to explain the reasoning behind this. For context, although I personally lean conservative, my political stance is irrelevant to this assessment; for instance, I consider Reiwa Shinsengumi to be clearly pro-expansionary. The following is a quote from NHK’s coverage:
“On the 5th, the JCP announced its manifesto for the upper house election. To protect livelihoods from soaring prices, the party aims to abolish the consumption tax and, as an emergency measure, seeks to immediately reduce the tax rate to a uniform 5%.”
So far, so good. However:
“The party states that the necessary revenue will be secured through tax reforms—such as raising the corporate tax rate and demanding that large corporations and the wealthy pay their fair share—and that they will not rely on deficit-spending bonds (赤字国債).”
In short, their argument centers on the redistribution of money (transferring wealth from large corporations and the wealthy to the general public); it is not an assertion that there is a shortage of fiscal spending from a macroeconomic perspective.
Certainly, if the JCP’s policies were realized, there is no doubt that low-income earners would be supported. Furthermore, since high-income earners tend to have a lower marginal propensity to consume, transferring income from them to those with less could potentially improve the economy relatively. I am not necessarily opposed to this line of thinking. In fact, compared to the current consumption tax system—which collects money from the masses under plausible-sounding pretexts only to funnel it back to exporting companies via subsidies—the JCP’s proposal is arguably the “lesser of two evils.” It is frustrating to see the current system persist even as the livelihoods of ordinary citizens are strained, the economy remains stagnant long-term, and the massive current account surplus continues to strain relations with the United States.
However, I believe that the primary source of funding for fiscal policy should be government bond issuance. Given Japan’s enormous current account surplus and vast net foreign assets, the capacity to issue bonds is incredibly high; therefore, the necessity to “take” (tax) in the first place is thin. If the JCP views deficit bonds as inherently “bad,” then their mindset is identical to that of the LDP-Komeito coalition, the Constitutional Democratic Party, Nippon Ishin, mainstream economists, and the old media. This carries the risk that they would move to strengthen tax hikes as soon as the economy shows the slightest sign of recovery. In my view, deficit bonds are simply a supply of currency, and there is nothing inherently wrong with them.
Furthermore, there are drawbacks to increasing taxes on large corporations and the wealthy. Determining the extent to which this should be done is a difficult issue:
- Capital Flight: If tax hikes are excessive, large corporations and the wealthy will leave the country. Even if they don’t leave entirely, there is a significant risk they will curb their investments within Japan.
- Organizational Inefficiency: Depending on how “large corporation” is defined, companies might avoid mergers or engage in strange corporate splits to stay under the threshold, potentially leading to inefficient organizational structures.
- The Definition of the Wealthy: Similarly, there is the question of how to define “the wealthy.” Personally, I don’t think we should stigmatize and hinder the progress of households earning several tens of millions of yen per year. Instead of “taking” from such households, wouldn’t increasing the number of such families be a more effective measure against the declining birthrate?
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