Kaieda Shows Roots in Pushing Zero-Interest Government Bonds

Banri Kaieda, the new State Minister for Fiscal and Economic Policy, is promoting zero-interest, estate tax-free government bonds as a cheap means to finance the public deficit. This is an idea that was already advocated by notable economic gurus Shizuka Kamei (most publicly when he held the Financial Services and Postal Reform cabinet portfolios) and Ichiro Ozawa (during the DPJ leadership campaign). This Yomiuri report states without further comment:

“The objective [of the zero-interest bonds] is to sop up tansu yokin (ed. ”Tansu yokin” is the Japanese equivalent of “mattress money”) and other assets that are lying about unused in households with government bonds and put the [funds] to good use.”

This is rubbish. Most people in Japan do not keep their savings in their bureaus (or their mattresses). Instead, they put the money into better use as financial assets, bank deposits, mutual funds, and the like. And guess what those banks (and Japan Post Office), fund managers, and the like purchase with the money…

So what’s the point of it all? Japanese inheritance tax law gives us the answer. The first 50 million yen of an estate is tax-free and there’s a 10 million deduction for each legal heir, so there’s a minimum 60 million tax-free to begin with. (There are other deductions that vastly complicate the picture, but let’s keep it simple. Besides, I’m not a tax attorney.) Beyond that, the marginal tax rate is highly progressive, beginning at 10% for the first 10 million but rising quickly to peak at 50% for anything over 300 million. At its simplest, the inheritance tax-free bond would result in massive windfalls for the heirs of the rich and elderly while the government avoids modest interest payments over the lifetime of the bonds. You don’t need to do the math to see that the government will be the big loser in terms of present value, while accepting more volatility in its long-term cash flow (interest payments being more predictable than mortality profiles of the eventual bond purchasers). It’s boondoggle, that’s what it is.

Then why are these politicians advocating the zero-interest, inheritance tax-free bonds? Well, Kamei and Ozawa are old men who have accumulated plenty of personal assets over their lifetimes. It is conceivable that they have a personal interest in pushing the measure. More likely, though, is the input that they get from the company they keep. As conservative political leaders with an ironclad grip on their Diet seats, their most important constituency consists of the rich, i.e. the members of the moneyed class who find vicarious pleasure in sponsoring their favorite politicians, much in the way that they might spend money on racehorses or professional sumo wrestlers.

I suspect that the reason for Kaieda’s support for the bonds is somewhat different, although it’s still represents doing favors for the rich. Before he became a politician, he had built up something of a reputation as an economic analyst. However, it appears that it was not as just any kind of analyst. A look through his bibliography shows that he was essentially a personal finance guru, more Suze Orman than Paul Krugman, Kazuyo Katsuma than Heizo Takenaka. And if an inheritance tax-free bond isn’t a personal finance advisor’s dream, I don’t know what is.

Case closed.

This does not, of course, bode well for economic policymaking under the Kan administration. It also does not speak kindly of the MSM in terms of economic literacy. On the other hand, this kind of nonsense gives me material for this blog, and in a very roundabout way helps put food on my table. So who’s complaining?