This paper was reported by Dr.Hirohisa Kitano, President of Japan Taxpayers Association ( JTA) at The 2007 Asia -Pacific Taxpayers Union Meeting (Oct.20-22 ), Shenzhen, China.
This paper does express the philosophy of JTA movements.
WELFARE STATES DEMAND PROGRESSIVE TAXES ( Oct.2007 )
By Hirohisa Kitano
Professor Emeritus of Tax Law, LL,D.,
School of Law, Nihon University,
Tokyo , Japan;
- World in the 21st Century is Society of Tax States
"Tax State" means a state which mostly depends on taxes for its revenue.
Socialist states appearing in the beginning of the 20th century including
the Soviet Union as typical one were non-tax states. In the ending of the
20th century, most of such socialist states had collapsed. China is also in
the process of transformation to a Tax State. I am forecasting that the
world in the 21st century will develop centering on Tax States.
The constitutional politics of a Tax State is essentially determined by how
to collect taxes and how to use them. The Constitution of a Tax State can
be defined as a code stipulating principles concerning how to collect taxes
and how to use them. Our peace, welfare, human rights, etc. will be
basically determined by such features of taxes.
People's peace, welfare, human rights, etc. in the world of the 21st century
will also be basically determined by how to collect taxes and how to use
them. Accordingly, high regard should be paid to what nature and structure
the taxes and their systems have in order to secure people's peace, welfare,
human rights, etc, on a global basis.
- Article 30 of the Constitution of Japan and Taxpayers' Fundamental Rights
Article 30 of the Constitution of Japan stipulates "The people shall be
liable to taxation as provided by law.". In brief, the Constitution of
Japan is a" peace-welfare" constitution. The Constitution of Japan does
not unconditionally or with no principle stipulate people's obligation to
pay tax. The people are liable to pay taxes only on the basis of "law"
conforming to the Constitution with respect to both how to collect taxes
and how to use them. Conclusively speaking, under the Constitution of
Japan, people have the status that they are obliged to pay taxes only in
accordance with the Constitution, that is, under the "rule of law"
requiring the principle of "ability to pay tax", on condition that taxes
paid by them will be used in accordance with the Constitution, that is,
based on the "rule of law" placing top priority on peace and welfare and
to that extent. I call this status of people "Taxpayers' Fundamental
The "Taxpayers Fundamental Rights" is a collective concept of various
civil liberties, social human rights, etc. concerning taxpayers and
constitutes concrete rights under the Constitution of Japan.
To what extent Taxpayers Fundamental Rights have been materialized is the
barometer of democracy and guarantee of the peace, welfare, human rights,
etc. of people in each state.
I think that the legal theory stated above of Japan holds good in terms
of the international society in the 21st century which will be developed
centering on Tax States, too. That is to say, peace, welfare, human
rights, etc. in the international society of the 21st century will be
determined by to what extent Taxpayers Fundamental Rights are
materialized in respective states.
- Principle of "Ability to Pay Tax" and Progressive Taxes
In recent years, the tendency of flat taxes is prevalent in many states
including Japan. Concretely speaking, poll taxes and proportional taxes,
not progressive taxes, are on the prevalence. A theory presented for
justification of the tendency of flat taxes is the principle of "benefit
to pay tax". The principle of "benefit to pay tax" can be used by
taxation authorities as a basis of imposition of taxes. But, from the
standpoint of taxpayers, it is not just a principle of tax burden
allotment. There is nothing but the principle of "ability to pay tax"
and the principle of progressive taxes as that for allotment of tax
burden among people. There is nothing but the principle of "ability to
pay tax" and the principle of progressive taxes as that for substantive
decision of taxes and tax systems. There exist no social-scientific or
constitutional basis to justify the principle of "benefit to pay tax".
The principle of "ability to pay tax" and the principle of progressive
taxes are the expression and materialization of the thinking of social
human rights, and originate in the constitutionalism which is the most
important in present welfare states. They constitute part of the
above-mentioned Taxpayers Fundamental Rights.
I would like to here add some comment to the principle of "ability to pay
tax". This principle holds good in terms of all sorts of taxes, national
taxes or local taxes, direct taxes or indirect taxes, and individual
taxes or corporate taxes. In the respect of the tax rate, it requires
the adoption of progressive tax rates, not poll tax rates or proportional
In terms of the individual income tax, application of the principle of
non-taxation to minimum living expenses is required. In terms of the
property tax, application of the principle of non-taxation or light
taxation (use value x low tax rate) on a certain range of property
securing people's rights to live (the property: (a) a certain ranges of
houses and house lots, (b) farmland and other assets actually in use for
agriculture, (c) factories-offices and factory-office lots of small
enterprises, (d) shares held by owners of small enterprises, and etc.).
In terms of the consumption tax, adoption of the specific consumption tax
capable of limiting items of objects to taxation and setting different
exemption points, rates, payment methods, etc. by class of objects is
required, rather than the general consumption tax covering all
Some economists argue that the progressive taxes do not match the
corporate income tax. This argument is wrong. In present societies,
corporations are legal entities distinguished from individual persons,
independent social entities and independent social units. Respective
corporations themselves constitute "units of taxation" to which the
principle of "ability to pay tax" should be applied. I explain about the
circumstances of Japan. With a majority of big corporations in Japan,
ownership and management are separated and the ratio of shares held by
individual shareholders is significantly low, accordingly, they have the
substance near to" foundation" rather than "association", almost with no
structure of "corporate income ultimately belongs to individual
shareholders" referred to as a basis for non-suitability of the
progressive taxes to corporations. On the other hand, with a majority of
small and medium-sized corporations accounting for more than 99% of
corporate enterprises, although having the legal personality, there is no
separation between ownership and management, and those corporations are
covered by the right to live of their owner shareholders. Application of
the progressive taxes is desirable in order to protect the right to live
of such smaller corporations, too. Because, under the progressive taxes,
those corporations become objects of low tax rates leading to their
As another basis of the argument that the progressive taxes do not match
the corporate income tax is presented the phenomenon of the corporate
income tax's transformation to the sales tax or indirect tax in
substance. However, the issue of shifting and incidence of taxation is
an issue of the economic process, with no need of being considered in
terms of theories of tax system. In addition, shifting and incidence of
taxation is not an issue unique to corporations because individual income
taxes imposed on personal enterprises are capable of shifting.
Accordingly, the theory of shifting of the corporate income tax does not
justify flat taxes. The issue of shifting and incidence of taxation by
big enterprises should be coped with by obligating them to open their
costs to the public, etc. .
Often appear arguments to justify flat taxes by pointing out the
importance of horizontal equity. Concerning this issue, I think
social-scientifically and constitutionally as follows. "Horizontal
equity can be achieved only by thorough application of the principle of
'ability to pay tax,' that is, thorough adoption of progressive taxes
based on the theory of vertical equity."
It should be noted that the system of universal flat taxes violates the
constitutionalism of welfare states and injures the right to live, one of
social human rights of socially weak people.
- Our opinion is especially from a view point of Constitutional legal
theory. Flat taxes disregard and infringe Social fundamental human
rights. The principle of non-taxation to
minimum living expenses etc. are from only the principle of "ability to pay
tax". The principle of "benefit to pay tax " is not just a principle of tax
burden allotment. We have to impose the high rate progressive taxes to high
income persons , rich persons, Big companies , and besides , We have to use
tax revenue to handicapped persons ,low income persons, Small businesses
etc.. We think, Horizontal equity can be achieved only by the thorough
application of the principle of "ability to pay tax ," namely progressive
taxes, Vertical equity. Finally say, Vertical equity is just equity.
- If we did reduce the many special tax treatments ( tax preferences ), and
If we did impose
the high rate taxes before introducing the general consumption tax (VAT) to
Rich persons and Big companies. then, We could receive 22 trillion Japanese
yen tax revenue. We do not need to raise the general consumption tax rate.