Too much of my youth was squandered watching cheap Japanese disaster movies. You know the ones I'm thinking of -- Godzilla crawls out of the ocean to wreak havoc on the terrified citizens of Tokyo. It wasn't until years later I understood those films to be allegories for the nuclear attacks on Hiroshima and Nagasaki.

Here's another allegory. Japan's economy could soon be ravished by a savage beast. This time the monster takes the form of public debt. No less a figure that Japanese Prime Minister Naoto Kan recently warned that the economy could "collapse" due to the combined effects of Japan's massive debt burden and an aging population.

Among developed economies, Japan takes the cake when it comes to running up big debt. Its debt as a share of GDP is 170%. By contrast, Greece's debt is 113% of GDP and the U.S. debt is 67% of GDP (but projected to skyrocket in the years ahead.) How bad are those figures? Pretty horrendous, to be honest. The so-called 'golden rule' of fiscal policy would keep a country's debt below 40% of GDP. Alarm bells should be going off when debt climbs above 60% of GDP. When debt climbs to over 100% of GDP, the bond market and credit rating agencies start to make noise and things can go downhill fast.

So here's a question: If Japan's debt is so high, then why hasn't its economy already failed like Greece? Glad you asked.

The answer is that Japan -- unlike Euro-zone countries or the U.S. -- is not a net borrower. Japan is a net lender thanks to a thriving export sector which produces a hefty trade surplus. Japan therefore doesn't need to sell bonds to keep its head above water. And when it chooses to issue bonds, it doesn't need to hawk them to foreign central banks; 95% of Japan's debt is domestically held. While Japan's debt is enormous, it's generally money they owe to themselves.

Still, Japan's political leaders recognize that excessive debt is a bad thing. The fiscally responsible course of action is to increase taxes and cut public spending. But there's a catch. Japan already has the highest corporate tax rates in the developed world with a top marginal rate at roughly 40%. (BTW -- the U.S. has the second highest corporate tax rates in the world.) Japan wants its businesses to thrive. It wants new investment and economic growth; it wants job creation. Taking the world's highest corporate tax rate and increasing it does NOT seem consistent with those goals. So what does a responsible government do? Fortunately there's an answer: VAT to the rescue.

Japan has had a VAT for a couple of decades. The standard rate is very low at a mere 5%. The tax is segmented into a federal component (4%) and a regional component (1%). Local governments thus receive one-fifth of VAT proceeds, even though the tax is administered entirely at the federal level. Imagine that -- local governments get adequate funding WITHOUT the enormous hassle of operating their own retail sales taxes. Genius!

Let's put Japan's 5% VAT rate into context. VAT rates in the EU range from 15% (minimum) to 25% (maximum). In other words, Japan's VAT rate is only one-third of the minimum rate permissible in the EU. Connect the dots here and you'll see there's an obvious deal to be had, and Japanese lawmakers are starting to realize it. They need to increase the VAT, say from 5% to 10%, and then radically reduce the corporate rate down to something more globally competitive like 20% or 25%. Double the VAT and halve the corporate rate. That's such a beautiful concept I want to stand on my desk and scream "Banzai" as loud as I can.

But wouldn't the plan drive up Japan's debt even more? No, actually it wouldn't. First, the corporate tax is a really inefficient means of generating tax revenue. It's astonishing how little money the tax actually collects. That's true in Japan, and it's especially true in the U.S. Second, VAT is a supremely powerful revenue machine. Doubling the VAT would more than make up for the revenue lost due to the corporate rate cut. And the government could use the extra yen to pay down their debt.

Et voilą ... fiscal crisis averted.

Friends, this deal is a no-brainer. Japan's new government and their business sector colleagues are serious about getting it done. We shall witness a business lobby with the foresight to welcome increased consumption taxation. If only K Street would get a clue.