Basic Income and Tax Credit with Benefit: A Proposal for a Digital Safety Net (MORINOBU Shigeki)
Generative AI and Taxation - From Robot Taxation to AI Applications (WATANABE Tetsuya)
Proposal for Lifetime Income Taxation (SATO Motohiro)
Theoretical Basis of the Destination-Based Carbon Tax (DOI Takero)
Fundamental Corporate Tax Reform: The Possibility of a New Corporate Tax System Focusing on Destination-Based Cash Flow Taxes and Residual Profit Allocation (BAMBA Yasuo, KOBAYASHI Yohei)
New Developments in the Taxation on Financial Income and Wealth (OKA Naoki)
By MORINOBU Shigeki | (Research director, Tokyo Foundation for Policy Research) |
After the pandemic, discussions on basic income, in which a state provides unconditional minimum livelihood benefits, have spread worldwide and a movement has formed. In addition to liberal ideology it has gained support from libertarians, neoliberals, and entrepreneurs in Silicon Valley; and social experiments have been conducted in some developed countries and municipalities. However, there are two obstacles to making such a policy a reality: the evaluation of its impact on work and the issue of financial resources necessary to implement the policy.
In Europe and the United States, refundable tax credits, which increase incentives to work by reducing taxes and providing benefits on the condition of work, have been introduced and achieved some success. Under a workfare concept, this system supports active labor market policies such as employment support measures. The Universal Credit in the U.K. has been effective in linking income information with social security benefits in real time. In Japan, we should consider establishing a "Digital Safety Net" that links income information and benefits through the use of digital technology.
Keywords: basic income, refundable tax credits, universal credit, real-time information, my number (Identification Number), digital safety net
JEL Classification: H00, H3, H5
By WATANABE Tetsuya | (Professor, Faculty of Law, Waseda University) |
In this paper, I analyze the impact of the evolution of robots and Generative AI on taxation from various perspectives as society becomes more digitized after the COVID-19 Pandemic. Specifically, in addition to the pros and cons of taxation on robots and Generative AIs themselves, I will examine what kind of use AI can be for tax authorities and taxpayers (including practitioners such as tax accountants); in other words, in terms of how all parties are affected by the emergence of Generative AI, and how they should interact with it in the future.
Taxation on robots has been proposed as a response to changes in the labor market associated with the evolution of these machines. Its main purpose is to tax as a proxy or for regulatory purposes. However, it is difficult to define the terms of "robot" or "automation”, etc. Even if the definition is successfully clarified, taxation may be avoidable without international coordination, while the promotion of technology in countries where robot taxation is introduced might be hindered. Regarding the possibility of taxing AI itself, there are some proposals to give AI a taxable personality in certain cases where it has economic autonomy.
For taxpayers and practitioners, Generative AI could be a useful tool. However, from the standpoint of legal liability, it is currently difficult for AI to replace tax accountants in individual specific consultations. In addition, issues related to privacy protection and data collection/data management have also been pointed out. In the future, the question of how to utilize AI in the environment surrounding the taxation issue will require deeper consideration.
Keywords: robotic taxation, generative AI, digitalization, innovation, tax administration, economic disparity
JEL Classification: K34
By SATO Motohiro | (Professor, Graduate School of Economics, Hitotsubashi University) |
This paper proposes a shift from annual income taxation to lifetime income taxation as a fundamental income tax reform in light of the new economic and social environment, including the diversification of work styles. It is stated, in an Economics study, that an individual's level of welfare (which supports tax-bearing capacity) is based on his/her lifetime income. This proposal is consistent with the economic theory. With the development of digital technology, the effectiveness of lifetime-based income taxation has been enhanced. The advantages of lifetime income taxation proposed in this paper can be summarized as follows: 1) In addition to contributing to redistribution based on lifetime tax-bearing capacity, 2) it ensures "horizontal equity" among taxpayers with equal lifetime income even if they have different income generation patterns. For taxpayers, 3) high income in the current period will be equalized with reduced income (or deficit) in the event of a disaster, etc., and will serve as insurance in the sense that a portion of income taxes paid in the past will be "refunded" to taxpayers. In addition, 4) there is no incentive to postpone the "realization" of income "accrued" in the current period, such as capital gains, to reduce taxation.
Keywords: lifetime income, equalization, insurance function, cash flow tax
JEL Classification: H2, H24
By DOI Takero | (Professor, Faculty of Economics, Keio University and Senior Fellow, Policy Research Institute, Ministry of Finance) |
This paper explains the concept of a destination-based carbon tax that is incorporated with an input tax credit, an export tax exemption, and a tax on imports, akin to a value-added tax. In addition, we present theoretical results of an economic model that we establish to examine welfare analyses under a destination-based carbon tax in comparison to a conventional carbon tax that does not include an input tax credit, an export tax exemption, and a tax on imports. The results indicate that social welfare under a destination-based carbon tax is superior to that under a conventional carbon tax in the model. In particular, a carbon tax devoid of input tax credits, export tax exemptions, and taxation on imports would result in tax accumulation, thereby placing a country at a competitive disadvantage with respect to the export of goods to other countries.
We implement welfare analyses in a closed economy model and an open economy model, respectively. In a closed economy, only the purchase tax credit is applicable. In a closed economy with double marginalization, the results demonstrate that social welfare is consistently better for a destination-based carbon tax in comparison to a conventional carbon tax.
In a model of duopolistic firms in an open economy, a destination-based carbon tax may not always be a desirable in terms of social welfare. This is because strategic behavior among duopolistic firms can alter the supply, demand, and prices of goods in response to tax rates in each country. We find that the advantage of a destination-based carbon tax in enhancing social welfare is diminished when the economic structure of each country is remarkedly disparate and the economic scale of a country with no carbon tax is significantly smaller. Conversely, a destination-based carbon tax is preferable among countries with relatively similar economic scale. This result has important implications in light of the future consideration of carbon pricing including carbon taxes, and the Carbon Border Adjustment Mechanisms (CBAMs) among Japan, the U.S., Europe, and emerging countries with large economies. In this paper, the rationale behind a destination-based carbon tax is not only elucidated in detail, but also corroborated theoretically on the basis of an economic model.
Keywords: carbon tax, destination-based taxation, input tax credit, export tax exemption
JEL Classification: H23, D61, D43
By BAMBA Yasuo KOBAYASHI Yohei |
(Chief Analyst, Mitsubishi UFJ Research and Consulting Co., Ltd.) (Chief Analyst, Mitsubishi UFJ Research and Consulting Co., Ltd.) |
Efforts have been made to address issues such as tax avoidance and tax competition arising from economic globalization and digitalization, and agreements have been reached on "Pillar I" and "Pillar II" as solutions to taxation issues arising from the digitalization of the economy, and preparations for their introduction are underway in various countries.
Meanwhile, the Destination-Based Cash Flow Taxation (DBCFT) and Residual Profit Allocation by Income (RPAI) plans, etc., have been proposed to fundamentally reform the problems of corporate taxation. Although DBCFT has advantages with regard to efficiency, suppression of tax avoidance, suppression of tax competition, and reduction of administrative burden, the deviation from current corporate taxation is significant and there are many issues to be addressed in terms of conforming with the WTO Agreement and other similar agreements. RPAI does not solve all of the current taxation system’s problems, but it has advantages when considering efficiency, suppression of tax avoidance, and reduction of tax competition, and its deviation from the current corporate taxation system is small. This deviation from the current corporate taxation is not as large as that of the DBCFT.
As for the direction of international taxation in the future, drastic corporate tax reform will not be implemented immediately, but rather, practical issues and the resolution status of current corporate taxation issues will be sorted out after first waiting for the introduction and establishment of digital taxation. If drastic corporate tax reform is deemed necessary, the scope of RPA introduction may be expanded in the form of an extension of the Pillar I mechanism, and in the future, the introduction of RPAI could be considered. Subsequently, if further reforms are required, it is assumed that the introduction of DBCFT will be discussed under an international agreement.
Keywords: international taxation, BEPS, tax avoidance
JEL Classification: H25, H26, F23
By OKA Naoki | (Senior Fellow, Tokyo Foundation for Policy Research) |
In May 2021, the U.S. House Committee on Ways and Means held a hearing on "Funding Our Nation's Priorities: Reforming the Tax Code's Advantageous Treatment of the Wealthy." In November 2023, the Senate Committee on Budget held a hearing on “Fairness and Fiscal Responsibility: Cracking Down on Wealthy Tax Cheats.”
This study explores the prospects for post-COVID-19 financial income and wealth taxation, drawing on the analysis in the comprehensive reports prepared for both hearings by the US Congressional Joint Committee on Taxation and the experience of recent tax reform proposals that focus on high-income individuals. The reason for focusing on the U.S. experience and findings is that the U.S. (federal) tax system derives a substantial portion of its tax revenues from individual income tax, and there have been in-depth discussions on the nature of the tax system, as well as timely discussions on the question of how progressive the tax system should be and how the expanded government should be financed in the post-pandemic era.
This paper analyzes the concentration of financial assets and income among the wealthy in Japan and the U.S., as well as the current state of distribution of income and wealth. Next, this paper endeavors to consider and evaluate institutional options for securing revenue and correcting tax burden distortions, including the minimum tax for the wealthiest taxpayers that Japan introduced in the 2023 tax reform, the additional tax (surcharge) that has been discussed based on the U.S. experience, and a more ambitious proposal, which is a mark-to-market taxation of unrealized gains.
Since financial assets that are systematically taxed favorably are heavily concentrated among the wealthy, this paper argues that changes in the way the wealthy are taxed can effectively address the problem of an appropriate burden without any changes to the financial income tax system in general.
In a post-pandemic economy, how to envision a tax system that efficiently and equitably raises revenue needed to address priority issues and promotes inclusive economic growth is a common challenge for all countries. Focusing on the taxation of wealthy, these are the themes explored in this paper: what is an ability-to-pay in the tax system, how much progressivity should be restored in the tax system as a whole, what are the institutional options for that purpose, and what is the appropriate burden and scale of contribution of these options to financial resources?
(Note: The term "wealthy" in this paper refers to the top 0.1% of taxpayers (total income over 50 million yen).
Keywords: personal income taxation, wealthy, inequality, capital gains taxation, redistribution
JEL Classification: H24, D31, D63