IMF suggesting Japan go to a 15% VAT; they are having trouble approving 10%. US pension tax already there, you know.

From the Japan Times.

I sometimes wonder if the IMF runners aren’t some kind of goofs, or if they know what they are doing.

Japan has had extremely weak funding of its public pension system, because it tries to cut out disenfranchised Japanese (those who don’t have regular employment or otherwise make the 25 year vesting) from having any kind of publicly-backed retirement security. America ended that debate in the 1930’s. It looks like it still goes on in Japan.

What is on the table is a proposal to have more dedicated funding of public pensions. It’s a good idea; most modern countries already do this.

The United States does not collect a “VAT” (consumption tax) per se, but it’s FICA tax works in most ways like a 10.6% consumption tax. (You pay it out of your check, even before you consume anything.) It is a total 15.3%, split in half for employer-employee. 2.9% of that goes to Medicare, the old age socialized insurance plan from 1965. 1.8% of it goes to federal disability insurance—people often forget that that one is there. The FICA tax is on wage income up to $110,100 this year, but with a 2% tax holiday for the employee. (So 7.65% employer, 5.65% employee.)

FICA is sufficient to generate everyone’s social security checks. For the last 25 years or so, it has also been sufficient to create an annual surplus, which is diverted into U.S. treasury bonds. People say that this surplus “doesn’t exist”, because they claim it isn’t invested in any things. What they forget is that the bonds are claims on other tax revenue of the government. They are backed by the taxing power of the U.S. government. If you ask me,

owning something that isn’t insured to be worth what you need it to be when you retire,

or having a claim on the government, with its power to tax,

you want the second scenario—provided your fellow citizens aren’t turkeys enough to gut the program.

I hope Japan finally fixes the funding mess, because I have a bit of my own retirement riding on it—maybe $160 a month at current exchange rates. I would never do that rip-off pension refund, because you don’t get back the employer portion. Plus, you will never find a private company to give you a life annuity for the same amount as the refund check.