Donations totaling approximately 1 trillion yen are “against the principle of taxation”! Simple Reason Why “Furusato Tax” Will “Destroy Japan

A system that allows tax revenue to be “exchanged for individual items (i.e., returned goods)” is a tax “rule violation.”

In October, the rules for hometown tax payments became stricter. Local governments were forced to review their tax returns, and some users may have made a “rush donation” three months earlier than usual.

Furusato tax payment, which started in 2008, is an official national system. However, Professor Kensuke Yoshihiro of the Faculty of Economics at Momoyama Gakuin University warns that the system is fraught with problems that could “destroy Japan.

What exactly is the problem with the Furusato tax system? We asked Professor Yoshihiro, who specializes in public finance, what is wrong with the Furusato tax system.

Since 2003, when the “One-Stop Special Exception” was introduced to simplify the tax deduction application process, the number of taxpayers using the Furusato tax system has been increasing year by year. According to the Ministry of Internal Affairs and Communications, the total amount of donations in FY2010 reached 965.4 billion yen, a record high. The number of people who used Furusato tax payment in the last year and received resident tax deductions in the current fiscal year is 8.91 million.

The amount of donation minus 2,000 yen will be deducted from both inhabitant and income taxes. In addition, through the one-stop special exception system, the donation deduction is automatically applied to both inhabitant and income taxes without the need to file a final tax return. It is a convenient system with high usability for users.

It has long been pointed out that the Furusato tax system “favors high-income earners.

In Japan, the income tax system is based on a progressive taxation system, and the higher the income, the higher the income tax rate and the larger the tax burden. In the case of Furusato tax, the tax credit is at a fixed rate, so the amount of the applicable credit is also larger depending on the size of the tax amount. Moreover, the amount available for Furusato tax payment is larger for higher income earners, which allows them to receive more expensive or more generous tax returns.

Income tax is essentially a means to eliminate income inequality. Through the tax system, those with lower incomes are asked to bear less of the burden, while those with greater economic wealth are asked to bear more. People are sometimes lucky and sometimes unlucky in life. The progressive income tax system is a mechanism to adjust for such luck and bad luck.

However, the Furusato tax system has become a system that gives preferential treatment to the lucky and cold treatment to the unlucky. The higher-income, higher-paid taxpayers benefit more. In other words, it is a regressive tax system.

In the first place, the “hometown tax payment” is “contrary to the principle of taxation,” Professor Yoshihiro points out. Furusato tax payment is actually a donation system, even though it has the name “tax payment.

In the case of Furusato taxation, people can choose the recipient and the amount of donation, and get the return gift they want. However, tax is not the kind of thing that can be exchanged for something individual in response to payment.

Taxes are like a “common savings account” in which money is collected to cover the cost of public services. If everyone is free to withdraw their savings, public services will not be provided to the socially desirable level. Furusato tax payment, which allows individuals to withdraw money from their communal savings and exchange it for goods, violates the promise of the tax system.

A portion of the donation is eventually sent to “Tokyo” through a portal site…

The Furusato tax system was created to correct the tax revenue gap between urban and rural areas. Is the system fulfilling its purpose?

Furusato tax system does not have the function to correct the gap between urban and rural areas in terms of financial strength. The design of the system itself is wrong.

Professor Yoshihiro believes that the Furusato tax system has disadvantages for local governments compared to other sources of revenue.

If a municipality wants to get the same amount of revenue from Furusato as it does from real tax payments, it will have to incur high costs.

According to data from the Ministry of Internal Affairs and Communications, the cost for local governments to pay Furusato tax in FY2010 was 46.8% of the amount of donations. According to the revision of the system in October, the rule was tightened so that the total cost including the cost of returned goods and administrative costs, which should be less than 30% of the donation amount, should be less than 50% of the donation amount.

■Transition in the amount and number of Furusato tax payments received (national total)

The local government has to reduce the amount of tax revenue by half and incorporate it into its revenue because 50% of the revenue is lost in expenses.

The revenue source is not necessarily effectively utilized for local government finances. Municipalities accumulate a significant amount of donations collected through the Furusato tax payment into a fund because there is no short-term use for the money. Tax revenues that are supposed to be used by urban municipalities to pay for public services are transferred to local municipalities through Furusato tax payments and are stored in the form of funds.

Moreover, part of the expenses that local governments spend on Furusato tax payments are returned to urban areas. Most local governments have contracts with several hometown tax portal sites and pay commissions for listing their tax returns. The portal site operators are mostly concentrated in Tokyo, so the money paid by local governments as commission goes to Tokyo.

Furusato tax payment also seems to be a system that allocates money to local areas, but in the end the money goes to Tokyo through the companies operating the portal sites. It is just like any other government subsidy.

Converting “taxes for the future” into “specialties” is the same as “eating the future

On the other hand, the outflow of financial resources from hometown tax payments is more pronounced in urban municipalities with large populations. In FY2011, the outflow of inhabitant taxes due to donations from the 23 wards of Tokyo totaled 82.6 billion yen, the largest amount ever. Yokohama (27.2 billion yen), Nagoya (15.9 billion yen), Osaka (14.8 billion yen), and Kawasaki (12.1 billion yen) were the largest cities, in that order.

Of the tax revenues from Furusato tax payments, 75% is compensated by the national government through local allocation tax. The non-grantee organizations, which do not receive local allocation tax, do not receive any compensation from the government, no matter how much tax revenues flow out. The amount of tax revenue that goes out is the amount of revenue that goes in.

The top three cities of Yokohama, Nagoya, and Osaka are grantees, but the Tokyo Metropolitan Government and Kawasaki City are non-grantees that are deemed by the central government to be able to manage their finances with their own tax revenues, while the 23 wards are outside the grant system because they adjust their financial resources under the Tokyo Metropolitan Government’s own adjustment system.

For example, Kawasaki City’s For example, the budget for the expansion of day-care centers in Kawasaki City in FY2007 was 1.5 billion yen. In the same fiscal year, the amount of pure revenue loss due to homeowners’ taxes was 5.3 billion yen. This means that 3 to 4 times more tax revenue than the budget for the expansion of day-care centers was lost.

Users of the Furusato tax system may have a desire to support their hometown or a region they have visited on a trip. But as a result, they are reducing the financial resources of the municipality in which they live. The investment that should be put into the development of infrastructure to support the children who will grow up and live in the future is being converted into specialty products that I want to eat. I believe that this is the same as eating the future.

Fifteen years after its inception, the use of the Furusato tax system has spread, but can the problems be solved? Can the problems be solved, or should they be abolished?

I think that problematic systems should be abolished, but it would be difficult to do so abruptly.

In order to reduce the problems as much as possible, it is necessary to first eliminate the competition among local governments for financial resources. For example, set an upper limit on the amount of donations that can be collected through hometown tax payments. If there is an upper limit, the competition for donations to each municipality should be leveled out.

The special tax credit for Furusato tax payment should be phased out and made the same deduction as for ordinary donations. The level of returned donations should also be reduced to the level of the Red Feather program.

In this way, it would be desirable to gradually reduce the nearly 1 trillion yen donation amount of Furusato tax.

Will the number of Furusato taxpayers really continue to increase after the system is revised? ……

I do not intend to criticize those who use the Furusato tax system because it is a government-approved system even if it has its problems. However, as a researcher specializing in public finance, I believe that we should properly tell the world what is being lost by this system.

Kensuke Yosh ihiro, Professor of Economics at Momoyama Gakuin University, was born in 1980 in Nagano Prefecture. He graduated from the Faculty of Economics at Hosei University in 2002 and received his doctorate from the Graduate School of Economics at the University of Tokyo in 2007. Specialized in public finance and tax policy. After working as an associate professor at Shimonoseki City University and Momoyama Gakuin University, he assumed his current position in 2009. Coauthor of “Public Policy in a Contracting Economy” (Keio University Press), “National Taxes and Forest Environment Taxes: Tax Increases Full of Problems” (Jichi Soken Book), etc.