Japanese Voters Reject Ruling Party and Doubling 'VAT Tax'; AP Calls It a 'Sales Tax,' Ignores U.S. Implications

http://i739.photobucket.com/albums/xx40/mmatters/JapanNaotoKan0710An outraged electorate has just handed Japan's ruling party its hat in elections for half of the seats in the upper house of that country's parliament in a direct reversal of election results from a year ago. Opposition parties made major gains.

The results constitute a resounding rejection of a massive value-added tax increase proposed by a guy whose immediate predecessor of the same party sounded an awful lot like the U.S. President Barack Obama when he led his party to a historic victory a year ago. But, as will be shown later, you wouldn't know that from reading the Associated Press's coverage of Sunday's returns.

But first, a bit of background: The 2010 version of Naoto Kan (pictured at top right in an AP photo) is round two of an attempt by the country's Democratic Party (no direct relation that I know of, but philosophically they're nearly clones) to "remake" the island nation. If that sounds depressingly familiar, it should. The parallels of Kan's same-party predecessor's victory to Barack Obama's 2008 electoral win are eerie, as this August 2009 election night report from Eric Talmadge the Associated Press will demonstrate (bolds are mine):

Japan opposition wins landslide victory
Vote seen as a barometer of frustrations over high unemployment, falling exports

Japan's opposition swept to a historic victory in elections Sunday, crushing the ruling conservative party that has run the country for most of the postwar era and assuming the daunting task of pulling the economy out of its worst slump since World War II.

A grim-looking Prime Minister Taro Aso conceded defeat just a couple hours after polls had closed, suggesting he would quit as president of the Liberal Democratic Party, which has ruled Japan for all but 11 months since 1955.

"The results are very severe," Aso said. "There has been a deep dissatisfaction with our party."

Unemployment and deflation – and an aging, shrinking population – have left families fearful of what the future holds.

Fed up with the LDP, voters turned overwhelmingly to the opposition Democratic Party of Japan, which ran a populist-leaning platform with plans for cash handouts to families with children and expanding the social safety net.

... The Democrats' plan to give families 26,000 yen, or $275 (U.S.), a month per child through junior high is meant to ease parenting costs and encourage more women to have babies. Japan's population of 127.6 million peaked in 2006, and is expected to fall below 100 million by the middle of the century.

The Democrats are also proposing toll-free highways, free high schools, income support for farmers, monthly allowances for job seekers in training, a higher minimum wage and tax cuts. The estimated bill comes to 16.8 trillion yen ($179 billion) if fully implemented starting in fiscal year 2013 – and critics say that will only further bloat Japan's already massive public debt.

Adjusted for relative population size, the stated $179 billion amount would be the equivalent of about $435 billion in the U.S. That may not seem like much compared to the Obama and the Democrats' $800 billion-plus "stimulus" of last year, but keep in mind that Japan spent the better part of the 1990s trying to make government stimulus work with little success. Also note that Japan's Liberal Democratic Party (LDP), as the author of the Lost Decade's stimulus, has hardly been deserving of the "conservative" label the AP's Talmadge applied to it.

Of course, after Japan's Democrats came to power, they had to deal with the annoying question of how to close the obvious budget deficits they were building. Their answer, as has all too often been the case with U.S. Democrats, was to raise taxes, despite the tax-cut pledge cited in Talmadge's AP report.

In a Monday, July 12 story, the AP's Jay Alabaster gave readers many of the details on how that idea was received by voters, but left out a really, really important one:

Japan braces for gridlock after ruling party loss

Japan's ruling party faced the prospect of political gridlock Monday after an election setback that could undermine its attempts to reduce a ballooning budget deficit and revive growth in the world's second-largest economy.

Half of the 242 seats in the upper house of parliament were up for grabs Sunday. The ruling Democratic Party of Japan won only 44 seats - far below its stated goal of 54 - while opposition parties made major gains.

That leaves the Democrats and their tiny coalition partner with 110 seats, well below their majority of 122 before the vote. The conservative Liberal Democratic Party won 51 seats, bringing its total to 84.

... the results are a dramatic contrast to the Democrats' landslide victory just a year ago, when they seized control of parliament and ended the rival Liberal Democrats nearly unbroken 55-year rule.

Losing the majority in the upper house will make it more difficult for the Democrats to move ahead on their agenda, which includes cutting wasteful spending, making government more open and creating a solid social security system for a rapidly aging and shrinking population.

... In office just a month, Kan has warned that Japan's finances could face a Greece-like meltdown if it doesn't cut back on soaring debt - twice the country's GDP - and suggested raising the sales tax as a solution.

But voters, already suffering from the economic downturn, rejected that idea.

... Kan acknowledged defeat early Monday morning, saying he failed to fully explain his proposal to raise the sales tax from 5 percent to as much as 10 percent in coming years.

... Kan, a former finance minister with roots in grass-roots activism, enjoyed support ratings of more than 60 percent when he took office in early June.

"Sales tax"? What is this "sales tax"?

It turns out that Alabaster was really referring to a de facto value-added tax, as shown here in this description of Japan's tax structure:

Japan Consumption Tax

The tax is similar to value added tax and is, in fact, imposed on most sales and services provided in Japan and on imports. A taxpayer may offset the consumption tax paid on expenses against the tax he has to pay on his income. Consumption tax is 5%. Companies whose sales per year are less than 10 million yen are tax exempt.

Imagine that. Yes Virginia, the "consumption tax" is effectively a VAT tax, as it is imposed on "consumption" by both individuals and companies. Every time "consumption" occurs, i.e., at every stage of production and distribution, the tax kicks in. The 10 million yen exemption is the U.S. equivalent of about $114,000, meaning that only very small businesses are exempt.

It seems that the AP and Mr. Alabaster didn't want to give their U.S. audience the impression that voters elsewhere have rejected a steep increase in VAT taxes. Why, accurate and responsible reporting might have made American readers more resistant to allowing this dangerous idea to get started. Apparently, Alabaster and the AP want to see a VAT tax come to pass in the U.S. so badly that they are willing to blatantly misrepresent events overseas in the name of that cause.

Beyond the self-evident deception just described, if what has just transpired in Japan's elections had taken place at the expense of a conservative government trying to cut taxes while a conservative or Republican president occupying the Oval Office was trying to do the same thing, we would never have heard the end of it. As it is, you can virtually take it to the bank that the establishment press will fail to identify the obvious comparison between what Japanese voters have rejected to what the Obama administration both is doing (letting the Bush tax cuts expire, an action I like to refer to as "repealing the tax system that grew the economy for almost six years"), and wants to do more of, including the VAT tax.

Raising taxes in a debt-drenched nation during a flat or allegedly recovering economy, in addition to being economically dumb, is an electoral loser. What part of "no" don't these people understand?

Cross-posted at BizzyBlog.com.

Taxes Congress Economy Media Bias Debate Budget Campaigns & Elections Double Standards Bias by Omission Stimulus Eric Talmadge Jay Alabaster Naoto Kan

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