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.


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

  1. I’m just curious as to how you know the monthly amount of Japanese pension benefits you are entitled to receiving. Is there a way to calculate these benefit payments based on ones kosei-nenkin and kokumin-nenkin contributions?

    1. Yes, it’s not easy, but it can be made easy. Here is the source:

      A kokumin nenkin payment (1 month) gets you about 136 yen at retirement. So you pay the coupon (15,100 yen?), and you get 136 yen a month at age 65.

      Kosei nenkin has an added element. Whatever your contribution was for the month (it’s based on some salary bracket), you get 5.8/1000 of that yearly. Divide by 12 for monthly. This is in addition to the kokumin nenkin money. (The kokumin nenkin is inside of kosei nenkin.)

      So if you have a covered job with kosei nenkin, and you make 300,000 yen a month, it’s 300,000*5.8/1000 = 1740 additional yen a year, or 145 yen additional a month.

      I show this per month, because most foreigners don’t pay the full 40 years in Japan.

      With totalization, you need 25 years between your home country and Japan. UK has some different deal.

      1. Yes, the UK “deal” sucks. There’s no totalization. Basically you get to choose whether to enroll in the Japan scheme or stay in the UK scheme for a certain length of time (I think the first three or five years). After that, if you’re still in Japan, you have to switch to the Japan scheme. You can still continue to contribute to the UK scheme on a voluntary basis, but it’s a double payment, there’s no credit or totalization of contributions: they’re completely separate. So, you’ve really got to be thoughtful in advance about how long you plan to stay in Japan, whether you plan to eventually return to the UK, and where you plan to retire to.

  2. Wow, thanks, this is excellent! You really know your stuff, not too many people are aware of this. It’s really helpful.

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