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Japanese Government is at Odds With Itself Over Sales Tax Hike

It isn't just the United States that is in the constant midst of tax reform debates. Across the Pacific, the Land of the Rising Sun is going through an internal struggle/debate over whether to raise its sales tax amid a slowing economy with substantial national debt. Japanese Prime Minister Shinzo Abe wants to raise the national sales tax from 5% to 8% in April and then to 10% in October 2015.

Even setting aside public disapproval and disquiet about the potential tax hike, Prime Minister Abe's own government cannot agree on the proposal. To counteract worries that the rise in sales tax would cut into demand, Abe and his advisors want the Finance Ministry to lower the corporate tax from 35% to 30%. They have declined to do so thus far. The Economy Minister has even gone so far as to say that the Abe Administration is "out of touch with the rest of us."

While the economy saw a 3.8% annual growth rate in the second quarter, the Japanese government is concerned that the public debt load, currently double the size of the economy, cannot be sustained without some changes to the sales tax. It's uncertain if the corporate tax cut would actually aid in the sales tax increase, or if it will simply cancel one another out and cause public resentment and political capital.

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