Posted on 07/13/2010 6:55:09 AM PDT by SeekAndFind
Japan’s ruling Democratic party (DPJ) has taken a shellacking at the polls, leaving prime minister Naoto Kan the leader of a weakened minority government. Kan’s government is caught in a set of pincers that very probably will be felt by others, and soon: Japan’s sovereign debt is enormous, so large that it has been downgraded by S&P and is threatened by future downgrades. Hoping to close the deficit, Kan promised to double Japan’s national sales tax, from 5 percent to 10 percent. Unlike a VAT, which is largely hidden from consumers, Japan’s consumption tax, as I understand it, is imposed at the point of sale, so consumers feel it — and they are not eager to endure an even deeper bite:
Voters were apparently unhappy with new prime minister Naoto Kan’s recently announced proposal to double the consumption tax rate to 10 percent. This despite polls showing a majority of the public say such a measure is inevitable in order to fix the creaking state finances, and it also being the policy of the opposition LDP – Sunday’s main electoral beneficiary.
“I touched on the consumption tax and the public may have felt it came all of a sudden. I also believe that my lack of explanation about it was a big factor,” a tired and slightly shaken-looking Mr. Kan told a news conference in the early hours of Monday morning.
I’m not sure what kind of explanation would have finessed the fact that you’re doubling a tax rate. My impression is that the Japanese public can calculate the difference between a 5 percent tax and a 10 percent tax (these aren’t American public-school kids we’re talking about).
Kan is sticking to his plan, damn the voters: Given a choice between cheesing off the electorate and enduring the wrath of the credit markets after another downgrade, he bowed to the markets: After all, you can always throw taxpayers in jail if they refuse to give you money, but you can’t throw investors in jail if they won’t lend to you. Even Leviathan has to worry about his credit score. Those of you who are banking on a Social Security check in old age, or a non-confiscatory rate of taxation in the near-to-middle future, keep that in mind: When the choice is between voters and the credit markets, voters lose.
This is the conundrum: The credit-rating agencies want a tax hike, voters don’t. There’s a way around that problem — deep spending cuts — but nobody is talking seriously about that, in Japan, in Europe, or in the United States.
Even as Kan presses ahead with his tax plan, Japan may end up downgraded, anyway: Kan’s weakened government, the reasoning goes, probably is not in a position to undertake the difficult and unpopular measures necessary to restore fiscal rectitude. So the outlook remains negative.
Takeaway for U.S. policymakers: The science-fiction guys were right that the future looks like Japan. But it’s not William Gibson’s dystopia — it’s Ayn Rand’s.
Big difference - Japan’s debt is held by the Japanese. Our debt is largely held by foreigners.
The difference is they owe it to themselves.
The stimulus approach is pretty good at running up debts, although it's claimed it reduces debt.
The worst tax is a hidden tax, that includes a VAT, Cap and Trade, deficits and inflation. Those are all hidden taxes by politicians wanting to trick us into thinking their spending is free..
“Big difference - Japan’s debt is held by the Japanese. Our debt is largely held by foreigners.”
Only 28% of our debt is held by foreigners and that’s only using our public debt. If you look at our total debt that drops to under 20%.
Not only do foreigners only own a small percentage of our debt, everybody conveniently forgets to account for just how much our private entities own of other countries debt and other assets. We still own the world by a large margin. Chinese doesn’t have significant non governmental assets like we do. Most of our wealth is held by individuals and we own a ton of stuff.
“There’s a way around that problem — deep spending cuts — but nobody is talking seriously about that, in Japan, in Europe, or in the United States.”
The governments are so addicted to the pernicious drug of the public’s money that nothing will pry them from it except bloody revolution.
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