Income redistribution is one of the major roles of a taxation system.

However, the income tax, which should be playing a central role in the picture, is practically designed in favor of the wealthy and nothing has been done to address that inequity.

There is a pressing need to restore fairness to the overall setup.

We call on Prime Minister Fumio Kishida to work out concrete measures for doing so as part of the discussions on tax system amendments that will continue through the year-end.

Wages received by company employees and others are taxable at progressive rates that grow with increasing income levels from 10 percent to 55 percent, including local taxes.

By contrast, profits on sale of stocks and other financial instruments, dividends, interest, and part of profits on sale of real estate are taxable at 20 percent across the board.

That gap has engendered the so-called problem of the “barrier of 100 million yen” ($680,000).

Finance Ministry simulations have shown the income tax burden ratio increases with growing revenue levels as long as the total income is less than 100 million yen. 

However, the burden ratio begins to drop when the total revenue exceeds approximately that amount, because financial gains, rather than wages, make up the bulk of the incomes of wealthy people.

Many members of the government’s Tax Commission said, when they met last week, that the government should rectify the setup. One said the situation poses a major problem in terms of the income tax rate structure.

We agree strongly with that view. Taxation should be increased for the incomes of affluent people.

Kishida, in fact, was aware of the inequities in the taxation of incomes, and he said, when he was running for president of the ruling Liberal Democratic Party last year, that the situation should be set right.

The prime minister, however, put the seal on discussions on the matter when officials of securities and other industries began to complain that such a measure would cause stock prices to drop. Kishida has since kept the matter on the back burner.

The tax system, however, is just one of the many factors that affect stock prices. It appears unlikely for stock prices to fall substantially as long as the economy and corporate performances remain strong.

Kishida’s very determination to pursue a “new capitalism,” his pet slogan, would be called into question if he were to remain excessively concerned about negative consequences and therefore choose to do nothing about the unfair tax system.

One of the points at issue is about where to set a threshold for wealthy people to be targeted. Some members of the ruling parties have suggested an income threshold of 1 billion yen.

That, however, would be insufficient for pulling down the 100-million-yen barrier. Public confidence in the taxation system could not be regained merely with a token tax increase.

The tax system should be revised steadily toward the goal of ensuring that the taxation of total income is progressive.

The government, in the meantime, has said it will perpetuate, and drastically expand, its tax exemption program for small-sum investments known as NISA, short for “Nippon Individual Savings Account.”

The program is acceptable as long as it is intended to encourage people to save money for old age. It should not, however, be designed as another system for giving preferential treatment to the wealthy.

Even under the current setup, many company employees are already entitled to a combined tax-free investment limit of 35 million yen or more for a married couple if the individual-type defined contribution pension plan (iDeCo), another government program, is counted.

It appears inappropriate to further raise the limit, which already exceeds the average Japanese's financial assets of about 19 million yen.

Preferential tax systems should desirably be applied only to long-term possession of diversified investment trust portfolios.

Similar systems should be designed on the basis of their initial objective of helping people set aside modest but stable savings for their old age.

--The Asahi Shimbun, Oct. 13