Why Income Tax and Social Insurance Premiums Haven’t Been Integrated? Social Security Taxes recommended by the Shoup Mission

Abstract

  This paper focuses on Social Security Taxes recommended by the Shoup Mission in 1949. The recommendation aimed to integrate income tax and social insurance premiums in order to make an efficient centralized collection system. We analyze the policy-making processes using historical institutional analysis as to why the recommendation of Social Security Taxes could not be realized. The reasons we find are (1) the Ministry of Health and Welfare and the Ministry of Labor were opposing the Ministry of Finance’s draft due to practical procedural problems, and Labor Unions and Management Associations were also opposing the draft, (2) the financial resources for the revenue shortage could not be resolved, and (3) there was a strong budget policy of “true balance of the total budget” under the Dodge policy which made the budget plan of increasing in expenditure almost impossible to achieve. This paper traces back to the origins of income tax and social insurance premiums as a dual system which have been used as financial resources for social insurance.