The Abe administration's decision to cut corporate taxes as a key feature of its economic growth strategy shelves the key question of how the tax cuts will be financed at a time when the government's fiscal health is the worst among industrialized economies and households face the prospect of another hike in the consumption tax next year.
Also missing is a clear picture of how the corporate tax cuts will not just reduce the tax burden on businesses but generate new demand and investments to benefit the whole economy.
As consensus on how to pay for the cuts in corporate tax rates appears elusive, an idea is reportedly gaining ground within the administration that anticipated tax revenue gains from the current economic upturn should be used to fill the revenue gap from corporate tax cuts. However, it would not make rational sense to count on revenue gains that are subject to the ups and downs of the economy to finance permanent cuts to corporate tax rates.
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