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To: EPS who wrote (75)	9/16/1998 3:36:00 PM
From: X Y Zebra	Read Replies (1) \| Respond to of 331

Experts Say Some Asian Countries Are in Depression One of the biggest disappointments has been Japan, which has the world's second-largest economy, more than twice the size of the rest of Asia affected by the crisis. A year ago, Asian leaders journeyed to Tokyo to try to persuade officials to revive the Japanese economy so that it could become a locomotive for growth throughout the region. Victor, I believe that the paragraph below (from the ALAN REYNOLDS article you posted earlier), contains the answers for all the voodoo that anyone could speculate and/or implement in order to solve the current economic anxiety. As we know, today the world economies seem to be so intertwined, perhaps the only exception (and only barely), may be the US economy. However, as the ny times article above, indicates a healthier Japan would certainly help solve the other asian economies. So I ask (and wonder), why is it that the Japanese, with all their perceived mystic of Oriental wisdom, can not move to change what it appears to be a basic and obvious move to stop the current situation. From the Reynolds article: The first tax mistake took effect in late 1987, when sales of land were subjected to a capital gains tax of up to 85% if the land had been held for less than two years. Aside from preventing land from being transferred to more efficient uses, this greatly reduced the liquidity of land as an asset, and thus depressed land prices. The second tax blunder was more serious. In 1989, in response to a political insider-trading scandal, Japan's parliament introduced a new 26% capital gains tax on stocks. Naturally, this extra tax on future returns made Japanese stocks much less valuable. And in 1992, Japan's Ministry of Finance came up with a new national tax on land values, in addition to local property taxes. According to Hiromitsu Ishi, one of the leading architects of this new land tax, the objective was "to seek an effective policy with respect to reducing land prices." Indeed, the value of Japanese land has fallen every year since this tax was put into place. Since land was an extremely important corporate asset, the land tax was also quite effective with respect to reducing Japanese stock prices. Capital gains in Japanese stocks have been so rare since they became subjected to the 1989 tax that eliminating any capital gains tax on stocks would obviously involve no revenue loss worth measuring. Revenues would also be unaffected by ending the prohibitive tax on short-term capital gains from land sales, since that tax was clearly designed to ban virtually all such deals. The 1992 land tax had the intent and effect of reducing land values, which means it has actually cost Japan's treasury dearly through its visibly destructive effects on the banking system and economy. In terms of primitive macroeconomics, repealing these foolish taxes would not constitute a tax cut at all, because it would be more likely to increase than to reduce future tax receipts. Contrary to fiscal macroeconomics, however, the economic value of a "tax cut" is not measured by how much revenue it loses but by how much efficiency and prosperity it spurs. I do not mean to be simplistic, but with such levels of taxation on capital assets, why would anybody in their right mind would jump in the Japanese economy/market, and further, as I understand it as of April 98, regulation now allows Japanese investors to take funds offshore..... It seems to me that the "powers that be" wish to perpetuate the current situation..... Am I missing something or ?? From the Reynolds article: The psychological impact of ending Japan's 1987-92 tax assault on asset values would be promptly reflected in newly euphoric financial markets world-wide. Japan's depressing atmosphere of malaise and retrenchment would be turned around in a matter of weeks, not years. May be I am "the last to know"......but is it not kind of obvious ?? Yet again we the people (of the world), are allowing a small band of bureaucrats affect the welfare of the very same people that they claim to protect and look out for..... Please point out to me the flaws of my conclusions, I may have a thicker skull than what I initially perceived.... Z. (puzzled) p.s. Is it that they want to prolong the low, low interest rates condition in Japan in order to continue borrowing and then investing in higher yielding markets ??