In this view, the tax system instills in Japan's corporate world perverse investment, purchasing and organizational decisions that, in turn, make Japanese firms less efficient than their Western rivals. The same sources say as well that small businesses and firms in certain industries enjoy highly preferential treatment under the current tax code, again skewing investment incentives and unnecessarily pampering favored companies. Ministry of Finance MOF tax policymakers agree with some of these criticisms, but they are wary of reform because of its uncertain impact on revenues. Finance officials therefore pale at the opposition's idea of lopping 10 points off the corporate income tax rate. MOF has proposed a more modest cut of 2.5 points, but it has coupled this reduction with the elimination of most types of tax-exempt reserves and many other breaks for businesses.
Corporate leaders scoff at the plan, saying that it represents no real change in the status quo.
They also argue that MOF's fears of a sharp rate cut are overblown, since that would spur business activity and, in turn, tax receipts. It is not clear at the moment whether Mr. Hashimoto is willing to spend any of his limited supply of political capital on overcoming MOF's resistance to a bigger corporate income tax cut. He certainly could count on support from companies as well as a growing number of LDP members. If the prime minister added some breaks for individual taxpayers, his base of support would grow even stronger. With his standing in public opinion polls already near a nadir, the prime minister may find that he and MOF must bend before a business community and a voting public united behind tax cuts as an antidote to the economy's current doldrums.