Lobsters, Hot Air Balloons, and the Hometown Tax A Japanese Model for Revitalizing Rural Economies in the United States

Abstract

Many municipalities in the United States are short of the tax revenue they need and have had to cut spending on public goods, which has lowered the quality of life for their residents. Municipalities in Japan face the same problem. Japan has developed an effective method for raising tax revenue for local governments and revitalizing languishing economies. Japan’s “Hometown Tax” system empowers taxpayers to divert tax revenue from affluent urban governments to struggling rural governments, stimulates small businesses and enables rural governments to be more autonomous and financially independent.

Under the Hometown Tax, a taxpayer that makes a charitable contribution to a local government receives a tax deduction and credit amounting to almost the entire value of the charitable contribution. At almost no extra cost, the taxpayer can select a Return Gift to receive from a local business in the region. Return Gifts range from deliveries of fresh locally-caught lobsters to vouchers for hot air balloon rides, and are listed on online portals that connect taxpayers to municipal and prefectural governments throughout Japan. The online portals have also become donation channels for regions experiencing natural disasters.

Implementing a Hometown Tax system in the United States would require the addition of state and municipal tax credits, and allowing for Return Gift selection would require the modification of U.S. quid pro quo contribution law. A Hometown Tax has risks, and could result in an excessive diversion of tax revenue from urban to rural governments. This Note concludes that, given its potential to enable struggling municipalities to prosper, increase the demand for goods produced by small businesses, and further the financial independence of local governments, the United States should consider instituting some variation of a Hometown Tax system.