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International Tax

How Japan’s “Hometown Tax” raises revenue for small communities

November 9, 2017
Photo by Redd Angelo on Unsplash of Fushimi Inari Taisha, Kyōto-shi, Japan

Columbia Law student Janet Kanzawa has a new article out about how Japan uses a unique tax to raise revenue for small communities.

Abstract

Many municipalities in the United States are short of the tax revenue they need and have had to cut spending on public goods, which has lowered the quality of life for their residents. Many municipalities in Japan face the same problem, and Japan has developed an effective method for raising tax revenue for the local governments and revitalizing languishing local economies. Japan’s “Hometown Tax” system has been successful in diverting wealth from affluent urban governments to struggling rural governments, stimulating local businesses, and enabling rural governments to be more autonomous and financially independent.

Under the Hometown Tax, a taxpayer that makes a charitable contribution to a local government receives a tax deduction and credit amounting to almost the entire value of the charitable contribution. At almost no extra cost, the taxpayer can select a return gift to receive from a local business in the region. Return gifts range from deliveries of fresh locally-caught lobsters to vouchers for hot air balloon rides in the region and are listed on online portals that connect taxpayers to all of the participant local governments throughout Japan. The online portals have also become donation channels for regions experiencing natural disasters.

The United States could implement some variation of a Hometown Tax system to improve the dismal financial state facing many of its local governments through the diversion of tax revenue from affluent regions and an increased demand for goods produced by local businesses. Transplanting the Hometown Tax system as it is would require the implementation of state and municipal tax credits in addition to currently-existing deductions, and allowing for return gift-selection would require the modification of U.S. quid pro quo contribution law. While the Hometown Tax has drawbacks such as too much of a diversion of tax revenue from highly concentrated areas to rural areas, the autonomy to taxpayers and increased subsidiarity and financial independence it allows for local governments makes it worth implementing in the United States.


More: Janet Kanzawa, “Lobsters, Hot Air Balloons and the Hometown Tax: A Japanese Model for Revitalizing Rural Economies in the United States” (November 6, 2017). Columbia Business Law Review, Forthcoming.


Photo: Fushimi Inari Taisha, Kyōto-shi, Japan by Redd Angelo.

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