On Friday, Prime Minister Abe Shinzo told reporters that his government was laying out the groundwork for an eventual reduction of Japan's effective corporate income tax rate from its current over 35% to under 30% sometime in the near future (Link). Abe and his advisors had proposed an accelerated reduction to under 30% in three years's time. However, the Finance Ministry and the Liberal Democratic Party's tax committee gagged at the inevitable giant shortfall in government revenues. (Link - J)
Abe's announcement has won the approval of the usual suspects. The Nippon Keidanren's new head honcho is thrilled (Link - J). The Sankei Shimbun's editors called the move "indispensable" (Link - J). The reliably underinformed and innumerate William Pesek called it "the centerpiece of the Japanese prime minister's initiative to boost growth." (Link)
Discussion of lowering the effective corporate tax rate in the media is shallow to the point of malfeasance. Even the reliably lefty and level-headed Tokyo Shimbun, which knows the score as the percentage of Japanese corporations actually paying ANY corporate income tax (under 30% of all corporations, just over 50% of those with base capital of 100 million yen or more - Link J) cannot sponsor an intelligent debate about the subject. (Link - J)
So let's look at some basic facts regarding the rates of corporate income tax companies pay, courtesy the only folks who seem to ask any questions, the Japan Communist Party and its party organ, Akahata ("Red Flag").
Take the above graph, published in Akahata on April 30. Based upon data demanded from the Tax Office by JCP member Sasaki Kensho, it shows that the actual rate of tax paid by Japanese corporations varies widely according to size and is never anywhere near 35% nominal rate. Micro-companies, ones with base capital of 5 million yen or less pay effectively pay about 22%. Small- and medium-sized companies pay anywhere from 23% to 27%, with the peak in the Mittelstand range of companies with 100 million to 500 million yen in base capital.
Above the 100 to 500 million yen range, the actual rate of tax companies pay drops precipitously. Egregiously, companies engaged in consolidated accounting, i.e., all the major corporations who are the names on the walls at the Nippon Keidanren, pay an effective 13% rate of tax.
Yes, it does look bad that the fabulously profitable Toyota Motors, whose chairman Toyoda Akio is not only a loyal supporter of Prime Minister Abe (Link) but who is the only person under 60 years of age in the directorate of the 2020 Tokyo Olympics (i.e. -- the person who will still be around when the Olympics are held in 6 years's time) pays not one yen in corporate income tax.
So it is the mid-sized companies who are not only paying taxes but who are paying them at a higher rate than anyone else. The big names, the ones with the exceedingly clever accounting departments, are taking advantage of every break they can get.
As for the economic impact of a reduction of the effective tax rate, increasing the retained earnings of corporations while crushing government revenues, I have ranted about the 220 trillion yen (2.2 trillion USD) that Japanese companies already hold in cash and equivalents -- i.e., the Everest of money that is neither invested, paid to the workers and nor returned to the shareholders -- before. (Link)
So what the hell is this talk of reducing the corporate tax rate about? Quietly, if you ask honest members of the LDP, it is about attracting foreign investment from non-Japanese sources. Japan's corporate income tax can be seen as an invisible barrier (oxymoron alert!) against foreign corporations investing in Japan, since these non-Japanese companies tend to be based in countries where investors demand profits -- which puts them a severe disadvantage in competing in Japan against Japanese corporations whose shareholders actually like it when the company books losses -- BECAUSE THEN THE COMPANY PAYS NO TAXES.
Later - In comments, Jason Mortimer provides an important rejoinder to this post, to which I have offer a short response.