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LDP's panel of spousal tax deduction system reform overwhelmed by Abe's office

The process of the government's decision to expand the spousal tax deduction system shows that deliberations by the tax panel of the ruling Liberal Democratic Party (LDP) have hollowed out after the panel was overwhelmed by the intentions of the prime minister's office.

The LDP's Research Commission on the Tax System had initially aimed to abolish the spousal tax deduction framework, under which 380,000 yen is deducted from the annual income of main earners, if their spouses' yearly income is up to 1.03 million yen, to reduce the tax burden on their households.

Nevertheless, the party decided to expand the scope of those eligible for the deduction after being pressured by the office of Prime Minister Shinzo Abe.

"We're considering drastic revisions to the income tax system for the first time in years," Yoichi Miyazawa, head of the LDP panel, told reporters in late August.

Moves to fundamentally review the tax relief framework rapidly lost momentum, however, even before the research commission launched full-scale deliberations on the issue.

"The biggest reason is that the government showed consideration to Komeito (the LDP's junior coalition partner)," said a senior member of the panel.

The LDP was considering introducing an alternative tax deduction system, under which a certain amount would be deducted from a married couple's earnings regardless of the income of the main breadwinner's spouse.

However, such a system would result in an income tax hike for many taxpayers, including middle-class households. Komeito wanted to avoid a tax increase before the next Tokyo Metropolitan Assembly election to be held in summer next year.

Taking these circumstances into consideration, the prime minister's office conveyed its intention not to approve the proposed new tax relief system to the LDP tax commission before the panel started debate on the issue.

In response to the request by Abe's office, the LDP tax research commission immediately abandoned introducing the new framework. Instead, the panel chose to expand the scope of those eligible for the spousal tax deduction by raising the upper limit on the income of spouses under the existing tax relief system. The "1.03 million yen barrier" has been viewed as an obstruction to women's participation in labor market because the upper limit discourages many women from earning more than that amount to be eligible for the spousal deduction.

The LDP tax research commission has held thorough debate before deciding on tax system reform each year. Nevertheless, only two questions regarding income tax were asked at a panel meeting held at the LDP headquarters in Tokyo on Dec. 6 over the fiscal 2017 tax reform. The panel approved the proposed reform plan after only three minutes of deliberations.

The commission bitterly confronted Abe's office over corporate tax cuts as part of the fiscal 2015 tax system reform and the scope of items subject to the reduced consumption tax rate in the fiscal 2016 reform. However, the panel was overwhelmed by the prime minister's office in the end.

A sense of defeat persisted among members of the panel, and a growing number of members think that there is no use voicing opposition to any decision by the prime minister's office, according to a senior member.

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