Comment by Igor

January 28, 2008 @ 11:49 am

First of all, thank you for this website and the interesting topics you are talking about.
I disagree with you about the capital gain tax. I think it is necessary to tax this kind of income. I am European and I really don’t like the financialization of the economy like we can see in the USA or other anglosaxon countries. This tax targets people that can afford it. On the other hand, the gasolin tax is an indirect tax that affects everybody despite their income. And after all, the wealthiest don’t care too much of the gasolin price, but low-income arubaito or families can feel it in their pockets.

Comment by Ken Worsley

January 28, 2008 @ 1:45 pm

Thanks for your comment!

There is a healthy debate to be had over the capital gains tax. I agree with you that it is necessary to tax this kind of income, but so long as an income tax is imposed, I don’t see why capital gains should be taxed at a higher rate than any other class of income. Why should people be penalized for being involved with the nation’s financial markets?

This tax targets people that can afford it.

If true (and I’ve yet to see data proving it), that would be exactly the problem. The tax keeps people out of the market who can’t afford it. Why should they be denied the opportunity to put their money to work for them? Seems a bit elitist to me.

the wealthiest don’t care too much of the gasolin price, but low-income arubaito or families can feel it in their pockets.

I agree that the gasoline tax affects everyone directly. But I think it’s because (especially small and medium-sized) businesses are hurt by higher transportation costs, which in turn means that consumers will be squeezed by higher prices. Lower income individuals working part-time would already have trouble affording a car, shaken, insurance and parking fees. I tend to doubt that a high percentage of individuals in this category own a car.

This would be an accounting nightmare, and also be difficult to make budgetary predictions, but perhaps the gasoline tax could float on a scale pegged to spot oil prices. I don’t see it happening, but just an idea…

Comment by Igor

January 29, 2008 @ 9:54 am

Thank you for your answer.

I was speaking yesterday with my students about this budgetary debate. One student suggested that this tax is a way to help rural regions, to finance weak local municipalities. It’s important to avoid wider gaps between big cities and rural areas, but I still think that indirect taxation is quite unfair as long that it strikes everybody in the same way.
In Japan we have a general 5 percent flat rate while in other countries it changes depending on the goods you buy. Luxury goods should have an higer rate than food, for example. It’s a basic social redistribution policy.

Regarding capital gain tax, I don’t want to seem elitist. I just don’t believe in the necessity of investing your savings into the stock markets. I don’t think that a greater popular stock ownership can be seen as a progress for a country. It actually makes the financial community too influent in the national political agenda, as you have seen in this days in the US, where the FED had to cut interest rates in an brutal way in order to avoid a financial nightmare.

Comment by Garrett DeOrio

January 29, 2008 @ 5:35 pm

As long as there’s a certain minimum level of untaxed income, a flat percentage is definitely the fairest way to assess taxes. Income taxes that are too progressive rely on two very shaky assumptions: 1. That people who are wealthy must have done something bad or unfair, and 2. That it is the responsibility of the government to equalize outcomes.
High capital gains taxes are based on the assumption, as Ken pointed out in the show, that earning interest or making money through investments is somehow less worthy or less honest than earning a salary or wage. This is like basing policy on comic books. If capital gains are taxed at the same rate and according to the same rules as any other income, I see no problem with it.

Helping more people, especially less wealthy people invest their money helps them become wealthier, whether that be stocks, bonds, or any other kind of investment. The rules as they are ensure that only the rich can invest comfortably, thus creating a situation in which the rich get richer and the poor stay poor.

Financial markets are already highly influential in every country in the world. What happened in the US would not have been less likely had only richer people been investing. (To be fair, having more poorer people investing wouldn’t have made it less likely, either.)

The fact is that no modern country or large nation can be run without financial markets. The question is only whether we keep things in such a state so as to ensure that only rich people can invest and control the politicla agenda, which is primarily concerned with spending, or allow a broader base of investment, thus allowing more people to have a hand in influencing the political agenda.

Investment and democracy are a lot alike - the broader the base of investors, the fairer markets will be, the broader the electoral base, the fairer elections will be. Both are inextricably tied to the governance of a country.

As for the gas tax, I fully agree that it could have a higher impact on poor people than rich people, but it is a pure excise - use less gas, pay less tax. For people who are far from public transport, the government could offer tax credits or, better yet, use some of the road money from the gas tax to encourage further public transport construction or offering credits for fuel-efficient, hybrid, or electric cars.

Comment by Patomaru

January 29, 2008 @ 6:24 pm

Not knowing a lot on the subject, I am slightly confused on who supports and who is against the the gasoline tax as far as the rural-city divide. Are people in rural areas more against the tax because it affects their pockets more proportionately because they have to drive more and they make lower wages to buy food and other goods, or are they more against it because rural areas gain a large amount of funding for (seemingly useless) road development? (I am sure it is more complicated and rural people’s opinions can’t be that easily categorized as one or the other)

It seems impossible to claim many people in rural areas can just start to use less gas. I know where I live the train comes once an hour to once every two hours depending on the time of day. Then, even if you work in the local “city”, good luck getting to your work place on foot from the train station. I have a hard time imagining many rural areas “using less gas” or even “increasing public transportation” could be deemed a possibility.

Comment by Ken Worsley

January 29, 2008 @ 11:40 pm

Luxury goods should have an higer rate than food, for example. It’s a basic social redistribution policy.

Sure, luxury cars maybe should have a higher tax rate than food, but you’re comparing apples and oranges. Compare tax rates amongst cheap cars and luxury cars.

The luxury cars are taxed at a higher rate than cheap cars for the sake of “social redistribution”?

Well, it’s also called socialism. Such policies are based on sentiment and not reason. What is the rational reason why one car should be taxed at a higher rate than another? I cannot see any rational reason why two types of the same token should have different tax rates.

And who gets to draw the line? I certainly don’t want a government involved in making such value decisions on my behalf.

Comment by Garrett DeOrio

January 30, 2008 @ 12:10 am

Good points, Patomaru. At this point, it seems that (with your caveats about generalizations being fully accepted) people in rural areas would miss the public works more than they’d suffer due to higher prices at the pumps. Whichever way this goes, though, I think it’ll have the largest negative effect on rural areas. As you point out, and as we said in the show, it would be rural areas that see a reduction in the public spending that plays such a big role in their economies and rural areas that find it much more difficult to deal with high gas prices - both because it is harder for them to drive less and because incomes in general tend to be lower in rural areas.

First, just to make it clear, when I talked about unnecesary driving and encouraging people to drive less, I was specifically referring to urbanites who have driving as a hobby or insist on using personal motor vehicles instead of using public transport, walking, or riding bicycles. I see no reason to help twenty-somethings afford the gasoline bills for their scooters. If people choose to drive (as opposed to driving because there’s no other realistic choice), why not make them pay the actual costs of their choice? (I would make the same argument for food, or anything else we do.)

Until the early 1990s, when JNR began its privatizations and became JR, there were many more rural and low-traffic train lines than there are now. With the establishment of JR came a need to consider cost-effectiveness and such lines were phased out. Considering the massive amounts spent on construction of unnecessary roads, etc., I see no reason the government couldn’t reconsider the uses of the gas tax and target them towards projects that would reduce dependency on the internal combustion engine. Part of the tax money is meant to be used for reducing Japan’s production of greenhouse gases anyway.

Even without a move away from cars, why not, as I mentioned above, give tax credits or other financial incentives for the purchase of more fuel-efficient, hybrid, or electric vehicles (or developing better vehicles of those sorts)? Why not use public funds to increase bus services? That’d be better for large parts of the aging rural population anyway - they wouldn’t have to drive in many cases. People would have their cars, as now, for when they needed them, but could realistically drive less, thus using less gas.

It would also be a good idea to include insulation standards in building codes and offer tax credits or subsidies for improving insulation, which would make houses and buildings much easier and more efficient to heat and cool. Financial incentives could also be used to wean people off of kerosene heaters (which might be a good idea for safety reasons in houses with very elderly people or children in residence.)

There are myriad ways that the revenue from a gas tax could be used to reduce the underlying problems related to petroleum. Beyond that, eventually, people are just going to have to pay more to live certain lifestyles or even give up certain things. As it stands, Japan’s current rural lifestyle is simply untenable and is heavily dependent on skewed policy and subsidies. I, for one, would like to see rural populations rebound and see many parts of rural lifestyles maintained, but a lot has to change. Dumping money into the countryside is just not a solution. Serious thought has to be put into ways of making a rural lifestyle feasible in Japan and that’s going to require some serious changes in the way that things are done - both in the country and the city.

Comment by Igor

January 30, 2008 @ 10:04 am

Thank you for the interesting answers.

From Ken Worsley:

“What is the rational reason why one car should be taxed at a higher rate than another?”

Well, actually this is how it works in most European countries… and I don’t think you can call Switzerland or Italy socialist countries… Maybe socialdemocrat, which, by the way, is a positive word as far as I am concerned.
This has nothing to do with sentiments, it has to do with the impact a Daihatsu city-car or a Land Rover has on the roads and the environment. The more you pollute, the more you pay: you can apply this principle with fair indirect taxation.

From Garrett Deorio:

“The fact is that no modern country or large nation can be run without financial markets. ”

Although I don’t think we should do without financial markets, I don’t think your thesis is correct.
A heavy financialization of the savings of working people is against their own interests. I personally would like to award long term investments, like certain bonds, that allow the economy to grow in an healthy way, without bubbles. I think to pay a small tax on capital gain doesn’t prevent you from investing in the stock market.
In general, to promote the financialization of the real economy like in the US is risky, especially when we are probably facing the worst financial crisis after 1929. Too often the financial markets depend on the will of few investment banks or people like George Soros, who don’t care about a healthy economy or real salaries. What they want is fast profits, no matter how. There is a general lack of regulations: the last scandal involves Societe General in France, but the list is indeed very long. Before even thinking about it, we need more transparency and public control over Wall Street and CO. We need to repair the damages caused by reaganomics and thatcherism.

Comment by Garrett DeOrio

January 30, 2008 @ 2:03 pm

A heavy financialization of the savings of working people is against their own interests. I personally would like to award long term investments, like certain bonds, that allow the economy to grow in an healthy way, without bubbles.

This is fine for, perhaps, the guiding priciples of a state pension system, but I see a danger in saying that this is what working people should do, as it is quite close to the idea that stock markets and the like are for rich people.
While I absolutely agree that there must be regulations to ensure transparency, I still think getting a broader base of investors in a financial market is the best way to get a wider variety of managers running things, thus making sure that guys like George Soros or Warren Buffett find it more difficult to exercise such a great influence.

As for a “small tax on capital gains,” I agree. Treat capital gains like any other income. If I make ￥10 million a year in salary and you make ￥10 million a year in interest and other capital gains, we should pay the same tax.
Just as for income, though, there should be a certain minimum for capital gains before taxes kick in. Let the small-time investor do his thing without forcing him to worry about taxes.

Comment by Ken Worsley

January 30, 2008 @ 2:08 pm

Igor:

The more you pollute, the more you pay:

Sure, that’s an emissions tax. How is that related to a luxury tax? Emission and price are not the same, nor inverse.