Rubin Hails Japan's Income Tax Cut: Analysts Skeptical the Benefits Will Last
Barber, Ben, The Washington Times (Washington, DC)
Treasury Secretary Robert E. Rubin praised Tokyo yesterday for its dramatic $15 billion cut in income taxes, saying Japan's economic health is vital to stemming Asia's financial crisis before it spreads to the United States.
"A strong economic recovery in Japan, led by domestic demand, is important for both our countries, for Asia, and for the world economy," Mr. Rubin said in a statement yesterday.
The income tax cut, coming on the heels of a $6.54 billion corporate tax cut, drove the yen and Tokyo stocks up and drew praise from the International Monetary Fund.
The IMF has committed more than $35 billion to prop up Korea, Indonesia and Thailand since the crisis began in July. To replenish the fund and prepare for worse crises, the IMF is seeking $45 billion to $75 billion in additional funds from the United States and other wealthy nations.
Congress is balking at any increase in U.S. contributions to the fund, while the Clinton administration yesterday said it favored the smaller, $45 billion expansion, approved in September by the IMF general meeting.
The Japanese tax cuts and other economic measures aim to revive Japan's economy from its seven-year slump and create a firewall between the United States and the economic collapse in Asia, which has also hit Malaysia and the Philippines.
"We welcome the policy actions announced last night by Prime Minister [Ryutaro] Hashimoto to strengthen domestic demand," Mr. Rubin said.
The surprise move came a day after Mr. Hashimoto's Liberal Democratic Party unveiled a $6.54 billion tax-cut proposal focused mostly on corporate tax relief. Many analysts criticized that plan as too weak to lift the economy out of the doldrums.
"I have said both domestically and abroad that we can't trigger a worldwide depression beginning in Japan," Mr. Hashimoto said yesterday at a news conference.
Analysts welcomed the move but expressed skepticism that the tax cut was large enough to spark a sustained economic recovery.
Michael Armacost, ambassador to Japan under President Bush, said in an interview yesterday that, given the size of the Asian crisis, "any positive news is good news."
"The size and duration [one year] of the tax-cut package will have some positive effect but be somewhat limited."
Mr. Armacost said evidence of efforts to stimulate domestic demand in Japan is welcome, especially if it increases purchases of products from other Asian economies and helps them out of the doldrums. "But to get economic growth restored will require more efforts . …