Summary: Pursuant to a congressional request, GAO discussed the Japanese tax system, focusing on how the Japanese have used tax incentives to encourage economic growth. GAO noted that: (1) Japanese tax policy has been frequently cited as an important part of Japan's economic growth; (2) the Japanese and American tax systems are similar in that they both rely on individual and corporate income taxes; and (3) Japan offers a much narrower investment tax credit than does the United States. In addition, GAO stated that: (1) Japan relies more heavily on corporate income taxes than does the United States; (2) a primary goal of Japan's tax policy has been to keep taxes at less than 20 percent of national income, although it has not met this goal in recent years; (3) while the United States allows a tax deduction for virtually all borrowed monies, Japan limits such deductions to funds borrowed for certain business purposes; (4) Japan uses a much different capital gains tax than does the United States; and (5) Japan attempts to avoid double taxation of corporate earnings by assessing a lower tax rate on distributed earnings than on retained earnings. GAO noted that differences in corporate financing between the two countries make it difficult to determine whether such policies would promote growth in the United States.
