I don't really have a strong opinion on what I think is best to do. But, I do get the feeling there will be unintended consequences to all this in the long-run. It will all go down as the great economic experiment. The bad part is if and a big if it were to work, then people will think that it always works. And that's a very big problem. We need real growth.
what? A corporate tax cut undermines tax incentives put in place to get corporations to invest? Are you on drugs?
What great economic experiment? It is not an experiment to print trillions of yen and basically inflating paper assets. That is a fact and causal relationship. I have no idea what the idea behind all that is supposed to be. There are fundamental differences between Japan and the US. There was a financial crisis in the US and all that was needed was a restoration of faith in the system. The same clever entrepreneurs existed before and after the crisis. As soon as faith (note I would never use the word trust in this context) was restored business startups could again go about their business which is the precise reason why the US's economy has relatively improved more than the ones of others. The situation in Japan is entirely and utterly different. Japan lacks an entrepreneurial spirit because the framework is not conducive to investing and starting up businesses. It is hostile to the idea to have female managers in leading positions. It is hostile to the idea of change in general. And most large formerly successful corporations have no idea what to do next. Their employees, researchers ran out of ideas, and they are too proud and well fed to go out into the market place to the same extend they did in the 80s when they invaded the US and set up shop everywhere, learned quickly, adapted, and then improved to create superior products. Sony is the perfect example of where Japan stands: A morally and mentally bankrupt company with no ideas, no products, little research, maybe 1-2 leadership divisions among 50 other divisions that either lose money or go nowhere. No money printed in the world will change that. Nothing but structural reforms. And Abe will be the last man on earth who will embark on structural reforms because he would not even know how to spell it. He represents old school, those who worship at Yasukuni shrine just because he feels more indebted to his right-wing fanatics in his party than to the idea to mend fences with the Chinese to bring about a true structural change. This man will go down in the history books as "the former prime minister while Kuroda was BOJ governor".
No, as I said, I agree with Richard Koo on this. Did you not read what I posted earlier? This is the wrong time for a corporate tax cut. You are offering them tax incentives to invest and spend. Those incentives become less effective if you cut their taxes without having to do anything in particular in return. It is really that simple!!! If you cut their taxes you undermine the incentives. Just cutting their taxes and giving them more money does not guarantee they will invest it or hire more employees. In recession they are likely to hoard what they save on taxes or use it to pay down debt. Exactly what you don't want them to do-- not at this time. They can do that latter when the economy is running on all cylinders.
You are very correct to recognize that there are dangers and pitfalls. These stimulus packages must be done right or they can backfire. But the alternative of not doing anything, or worse yet, put millions out of work and hoard money, has been shown over and over again to lengthen and deepen already deep recessions. This is what has happened in Japan, but Japan is finally waking up to the fact that they have to move in a new direction. Let's hope they do it right. It is very easy to screw up -- an example is the premature 8% consumption tax they imposed. Such a tax pushes in the opposite direction as the stimulus measures, so they counteract one another. The consumtion tax had to be quickly rescinded. Everything has to be coordinated, you can't have austerity measures and stimulus going on at the same time.
you wrote "A corporate tax cut now undermines to some extent the tax incentives put in place to get corporations to invest." -> that is nonsense no matter how you twist it. A corporate tax cut is ALWAYS an incentive for corporates to invest. Whether they will indeed invest or not is a different question but the idea of corporate tax cuts is to incentivise businesses to do something else the government would not forgo tax receipts. Maybe you are not a native speaker (neither am I) and you meant something different but your wording is very misleading. But I get your meaning after you explained: So let me now take this a step further: You say in a recession corporates hoard what they save on taxes. And at the same time you claim that the free money that is floating around by the BOJ will cause corporates to invest or put the money to good use? Something in your line of logic is majorly off.
Japan has tremendous engineering and design capability -- Look what Fujifilm is doing for example. They are now the world's leader in mirrorless camera development. And there are dozens of other tremendously innovative Japanese Companies. You are selling Japan short. A Big, Big mistake! Yes, there are problems. They are fixing them. Japan is in transition.
Piezoe, with all due respect but have you slept over the past 2 decades??? Are you claiming Japan has not put on massive massive massive spending programs, has not embarked on massive debt accumulation to finance fiscal programs? Are you saying you have not witnessed how none of the money that was put in circulation has brought about structural change? What they do now is no new direction!!! It is the exact same old direction: Throw good money after bad businesses and disillusioned people. You can't in all seriously claim this is a new idea. Please, I understand we majorly disagree on theories and ideas but we can't seriously disagree on historical facts.