The end of salaryman tax reduction: Japan’s tax policy and its social background

Abstract

Personal income tax reductions can be considered popular policies to attract volatile voters. Nevertheless, after a series of tax cuts from the rapid growth period until the 1990s, the governing Liberal Democratic Party (LDP) refrained from pursuing any more similar policy measures. This paper explores the relationship between the LDP and the electorate by focusing on tax policy. It highlights that the volatile social group of the “salaryman,” which consists of salaried workers and their families, used to have great influence on tax policy under previous LDP governments. Personal income tax reductions until the 1980s thus were meant to be salaryman tax reductions. They took place during a period when the social group of the salaryman developed into a mainstream part of Japan’s society. However, the group failed to maintain its influence after the 1990s, since when it has been diminishing both in size and in homogeneity. This paper holds that it was this decline of the salaryman population that prevented the LDP government from making any further personal income tax cuts.