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Japan vs. U.S. Part II

2 min readBy: Scott Hodge

The contrast between the way U.S. politicians approach corporate taxation and the way foreign politicians approach the issue could not be greater.

On the same day that Japan's Nikkei business daily is reporting that the Japanese "government is aiming to cut taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on company earnings by five percentage points next fiscal year," the Wall Street Journal is reporting that "Democrats are trying to boost their political fortunes ahead of this year's midterm elections by attacking corporate tax rules they say encourage U.S. multinationals to send jobs overseas."

According to the Journal, Democrats "want to eliminate several complex rules that give special tax breaks to overseas earnings, and some Democratic candidates are arguing in campaign ads that Republicans who oppose the changes are siding with big corporations over workers."

In contrast to this anti-business saber rattling is the realism of Japan's new Economy, Trade and Industry Minister Masayuki Naoshima, who was quoted as saying, "It's a fact that international corporate tax rates are 10 to 15 points lower than Japan's." He said, "Over the medium term, the government will aim to bring the rate down to around the global standard."

Naoshima also sees cutting the corporate rate as the key to kick starting the economy. "It is now the time to decide (on cutting corporate tax) for the sake of future economic vitality, employment and securing increased tax revenues," the minister said.

"Japan's economy has basically been in a slump for the past 20 years and people have been overwhelmed by a sense of stagnation."

Washington's political class would do well to learn from Japan's experience before the U.S. falls even further behind in the global competition for capital, investment, and jobs.