Besides eliminating sales tax, Japan also pegged the yen to gold and lowered income tax rates. I've written over and over that increasing sales tax is not the answer to Japan's problems. Tax increases without cuts won't help us. We need to cut spending and cut taxes and return the yen to a stable currency.
Akihabara in 1945 and 2001
Need proof? It worked in Japan after the war to create the greatest economic recovery the world has ever seen!
Forbes Magazine writes in an article from Feb. 3, 2012: Let's Dream a Dream for Greece:
Japan’s recovery started with a dream, among politicians and business leaders. In their imagination, Japan would rise from the ashes – actual, real-life ashes – and become again a great and prosperous nation.
This clear vision quickly led to a plan of action. The situation in 1949, of hyperinflation and crushing taxes, was plainly not in accordance with the goal of a prosperous Japan, so the leaders set about fixing the problem.
They had virtually no resources to do so. The economy consisted mostly of black-market subsistence, tax revenues were negligible, and issuing debt was impossible. Since tax revenue was far less than the government’s needs, the government subsisted mostly by printing money, with the usual consequences.
One of the first things they did was to make government debt issuance illegal. It remained so until 1965. Then they refused any more economic aid.
In 1949, they pegged the yen to gold, immediately ending the hyperinflation.
In 1950, the income tax schedule was revised. The top rate fell to 55% from 85%. But more importantly, the income at which that rate (and others) applied was raised dramatically. This rate originally applied to income of 500,000 yen. By 1957, the 55% tax bracket applied to income of 10 million yen, twenty times higher.
In 1951, interest and dividend income were taxed at a separate, lower rate. In 1953, capital gains were exempted from taxation completely. Interest income was taxed at only 10 percent. Businesses received a truckload of favorable treatments, in the form of accelerated depreciation, deductions, and exemptions. In 1955, interest income was made tax-free.
Throughout the 1950s and 1960s, the government had a specific goal: to keep tax revenues, and the size of the government, below 20% of GDP. They reasoned that this would be best for the brisk growth of the private sector. It worked.
The Japanese people, as we know, became wealthy in those years. Wealthy people are able to pay more in taxes than poor people. Between 1950 and 1970, tax revenues of the central government increased by sixteen times, all in non-inflationary gold-linked yen.
As the country became wealthier, and GDP grew, then the services that the government could provide on a budget of 20% of GDP grew as well. Welfare and national healthcare plans were added. Dirt roads were paved. Sewage systems were built. There was no conflict between government services and the private sector. Both became prosperous together.
This story is well known to those who follow such things.
Read more here.
Thanks to Aaron Egon Moser