Tokyo Foundation Proposes Specific Institutional Design for the Introduction of a 'Refundable Tax Credit'
The Tokyo Foundation for Policy Research released a policy proposal on April 10, detailing a 6-point institutional design for introducing a 'Refundable Tax Credit' to support low-to-middle income workers and fix the gap in the second safety net.
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The Tokyo Foundation for Policy Research (Minato-ku, Tokyo; President: Mieko Nakabayashi) published a policy proposal titled 'Specific Institutional Design for the Introduction of a Refundable Tax Credit' on its website on Friday, April 10.
Providing support for low- and middle-income workers who fall through the cracks of existing systems due to the absence of a 'second safety net'—positioned between employment insurance (the first safety net) and livelihood protection (the third safety net)—such as non-regular workers from the employment ice age generation, has been a long-standing issue.
This proposal faces this structural void head-on. It presents a specific two-stage institutional design tailored to Japan to realize a 'Refundable Tax Credit' that balances employment support and income redistribution.
In the United States, employment support for low-income workers is carried out through a combination of tax credits and refunds (benefits), which has proven effective in both improving work incentives and correcting disparities. Building upon these insights from the West, this proposal makes the following six recommendations designed to suit Japan's institutional environment.
### Specific Institutional Design for the Introduction of a Refundable Tax Credit
[Proposal 1] Support targeted at individual workers
[Proposal 2] Phasing out benefits gradually so as not to create 'annual income barriers'
[Proposal 3] Implementation via benefits paid into public money receiving accounts
[Proposal 4] Utilization of municipal income data and a Government Data Hub (tentative name)
[Proposal 5] Benefit administration as a national government function
[Proposal 6] Financial resources secured through reviewing the income tax system and reforming the social security system
The Foundation lists the transition to a sustainable social system under a declining population as one of its research themes, and is advancing research on tax and social security system reforms.
This proposal is the result of a joint effort by Shigeki Morinobu (Senior Policy Officer / Person in Charge of Compilation), Motohiro Sato (Senior Fellow / Professor at the Graduate School of Economics and School of International and Public Policy, Hitotsubashi University), Takero Doi (Senior Fellow / Professor at the Faculty of Economics, Keio University), and Kazumasa Oguro (Senior Fellow / Professor at the Faculty of Economics, Hosei University).
The Tokyo Foundation has been researching the refundable tax credit for many years. For details, please refer to the 'Refundable Tax Credit Special Feature Page'.
## Summary of the Proposal
**■ Background**
Discussions on introducing a 'Refundable Tax Credit' began in the National Council on Social Security. This system, widely introduced in Western countries, conducts income redistribution through fine-tuned tax credits and benefits (refunds) according to income. It has the effect of increasing the work incentive for low- and middle-income earners and has a proven track record in both correcting disparities and promoting employment.
**■ Problem Awareness**
In Japan, the 'second safety net' located between employment insurance (first) and livelihood protection (third) remains absent, leaving support scarce for low- and middle-income workers who fall out of the system, such as non-regular employees from the employment ice age generation.
Providing support for low- and middle-income workers who fall through the cracks of existing systems due to the absence of a 'second safety net'—positioned between employment insurance (the first safety net) and livelihood protection (the third safety net)—such as non-regular workers from the employment ice age generation, has been a long-standing issue.
This proposal faces this structural void head-on. It presents a specific two-stage institutional design tailored to Japan to realize a 'Refundable Tax Credit' that balances employment support and income redistribution.
In the United States, employment support for low-income workers is carried out through a combination of tax credits and refunds (benefits), which has proven effective in both improving work incentives and correcting disparities. Building upon these insights from the West, this proposal makes the following six recommendations designed to suit Japan's institutional environment.
### Specific Institutional Design for the Introduction of a Refundable Tax Credit
[Proposal 1] Support targeted at individual workers
[Proposal 2] Phasing out benefits gradually so as not to create 'annual income barriers'
[Proposal 3] Implementation via benefits paid into public money receiving accounts
[Proposal 4] Utilization of municipal income data and a Government Data Hub (tentative name)
[Proposal 5] Benefit administration as a national government function
[Proposal 6] Financial resources secured through reviewing the income tax system and reforming the social security system
The Foundation lists the transition to a sustainable social system under a declining population as one of its research themes, and is advancing research on tax and social security system reforms.
This proposal is the result of a joint effort by Shigeki Morinobu (Senior Policy Officer / Person in Charge of Compilation), Motohiro Sato (Senior Fellow / Professor at the Graduate School of Economics and School of International and Public Policy, Hitotsubashi University), Takero Doi (Senior Fellow / Professor at the Faculty of Economics, Keio University), and Kazumasa Oguro (Senior Fellow / Professor at the Faculty of Economics, Hosei University).
The Tokyo Foundation has been researching the refundable tax credit for many years. For details, please refer to the 'Refundable Tax Credit Special Feature Page'.
## Summary of the Proposal
**■ Background**
Discussions on introducing a 'Refundable Tax Credit' began in the National Council on Social Security. This system, widely introduced in Western countries, conducts income redistribution through fine-tuned tax credits and benefits (refunds) according to income. It has the effect of increasing the work incentive for low- and middle-income earners and has a proven track record in both correcting disparities and promoting employment.
**■ Problem Awareness**
In Japan, the 'second safety net' located between employment insurance (first) and livelihood protection (third) remains absent, leaving support scarce for low- and middle-income workers who fall out of the system, such as non-regular employees from the employment ice age generation.