The Illusion of an “Integrated Reformation of Tax and Social Security”

“We Will Use It Only for Social Security”
Prime Minister Shinzo Abe officially announced an increase in consumption tax at a press conference in October, and talked about how he planned to use the new tax revenue. Both the current LDP and the previous DPJ administration discussed an “integrated reformation of tax and social security.” They’d prefer the surplus tax money to go into pension funds, medical care, and nursing facilities.

However, the cost of social security has been increasing at about 1 to 2 trillion yen every year. Should an “integration” really be allowed to happen then?


Consumption Tax To Become 70%

In a report released in August of this year at the IMF, which the Ministry of Finance sent to many of its employees, it asserted that “consumption tax in Japan ought to increase to 15%.” With the money, the government would like to deal with the current social security deficit and the escalating burden of social security over the next 10 years (note 1). For your information, Japan has consistently been the second largest contributor to the IMF after the U.S., and many Japanese IMF employees have come from the Ministry of Finance, and they have been, in effect, representatives of the Ministry of Finance’s positions.

However, if you consider a decade into the future, problems will become much bigger. According to Yutaka Harada’s estimates, a professor at the Department of Economics at Waseda University, the 2060 consumption tax will be at 68.5%. The estimate shows how high the consumption tax will climb according to population projections, which have been based on cases in which social security benefits for senior citizens remained the same (2.81 million yen per person above age 65) and taxes other than insurance and consumption did not rise. With a low birth rate and an aging population, Japan’s working population has been in decline. Even with options such as raises in insurance premiums, income taxes, and inheritance taxes, if we were to assume that only the consumption tax were to grow, then it should reach around 70% in order to maintain the social security system. we will reach the same level as Sweden, an enormous welfare country that burdens its citizens with a 70% income tax.

The reasons for such heavy taxes are the diversions of funds collected from workers to senior citizens in order to pay for pensions, medical, and nursing care through pay-as-you-go methods. This is not like private insurance where there are independent personal accounts — those funded don’t come from there. In all practicality, this becomes a lavish handout of tax money.

(Note 1) The deficit, which involves social security, is currently at 12 to 14 trillion yen annually. In terms of consumption tax, that’s 5 to 6%. The burden of social security now increases at 1.3 trillion yen per year. In 10 years, it’ll be 13 trillion yen. Therefore, a 10 to 11% increase in consumption tax will be necessary. Thus, consumption tax will escalate to 15%.


Public Pension is a “State-Run Ponzi Scheme”

The government started lavish handouts in the 1970s. “Everyone will receive much more pension money than they’d paid for,” promised the politicians. As a result, according to an estimate by Wataru Suzuki, a professor at Gakushuin University, people in their 70s received on average 30 million yen more than they paid. On the other hand, the children of those recipients, who were just born, have a 30 million yen burden (note 2).

The reason why things are not turning out as “advertised” is because this scheme is based on the assumption that the working population will continue to rise. In reality, the working population is diminishing due to low birthrates and an aging population. No more money exists now to “divert” to senior citizens, and the system will eventually break down. This public pension design is no different from a “Ponzi scheme” wherein the initial subscribers always benefit while the later subscribers lose out with the ultimate collapse of the system.

However, public pension does not easily collapse, which is unlike the Ponzi scheme groups because the government has “tax collecting power.” The working population has the present burden of paying more insurance premiums, which is somehow keeping it up. The government has also been digging into reserve funds, which they have been collecting through false claims about the “funding system”. That has also been a way that they have kept the system alive. And above all, by raising taxes, like they’ve recently done with the consumption tax, and by injecting it into the social security system, they could keep it going for quite a number of years.

The money that the government has been handing out for more than 40 years could amount to around 800 trillion yen. However, the amount of public pension promised to citizens requires a reserve of 950 trillion yen. In 2009, there was only 150 trillion yen left, which left a deficiency of 800 trillion yen. If you were to add all of the money the government handed out in terms of medical and nursing care, then the total would be about 1400 trillion yen (note 3).

The government has recently been trying to fill this void with raises in the consumption tax, and they have been forcibly trying to perpetuate this “state-managed Ponzi scheme” through a fraudulent, government-run ring

(Note 2) According to Prof. Suzuki’s estimates on the generation born in 1940, on average they will have 30.9 million yen in excess. For those born after 1965, they won’t be able to collect anything. And for those born in 2010, they’ll suffer a 28.39 million yen loss.
(Note 3) These figures come from Wataru Suzuki’s estimates, who’s a professor at Gakushuin University.


There’s No Difference Between the AIJ Pension Fraud Case and Public Pension

A well-known pension fraud case happened when the AIJ Investment Advisors lost assets, which came to light in February 2012. In this example, 90% of the 200 billion yen collected from the pension funds of small to medium sized enterprises disappeared.

They were accused of committing fraud as they were claiming “a false and outrageous rate of return,” — and this outrageous rate of return was at 5 to 9% from 2006 and thereafter. In order to maintain their lies, they kept up a shoestring operation, and they misappropriated the money they collected from new customers.

Of course, the current rate of return public pension promises is far below 4.1 or 5%, but the fact is that they are now collecting money while pledging high returns, and diverting money from the left to right in a shoestring operation. The AIJ scandal was no different.

The AIJ Investment Advisors’ financing came to a dead end, and their impossible business status became public, and their executives and others were prosecuted on allegations of fraud. In the case of public pension, the “impossible business situation” has been covered for a long time as politicians have been continuously filling the gaps with tax hikes.

The integrated reformation of tax and social security is a new form of “crime”, which ought to lead our country into a “70% consumption tax rate”. It seeks to conceal a “fraud case” that is happening at the national level. The government is victimizing its citizens on both ends.

The LDP, the New Komeito, and the DPJ, who made the decisions to hike up the consumption tax, and furthermore the successive officials at the Ministry of Health, Labor, and Welfare and at the Ministry of Finance, who designed it, must eventually pay for their crimes of destroying the citizens’ provisions for old age on a 1000 trillion yen scale. Angry citizens might take to the streets one day.


British Disease Has Infected Japan

With the way things are going, Japan will become a “heavily taxed nation.”
Master Ryuho Okawa, the founder of Happy Science, gave a sermon to lay people named “Introduction to Creating the Future” in October. Master Okawa explained how an integrated reform of tax and social security would endanger Japan, a country that has recently become “infected with the British Disease.”

In the 1970s, England’s maximum income tax was at 83%, and the maximum tax on unearned income such as stocks and inheritance was at 98%. Large assets from the aristocracy and the like were sheltered and received tax savings, but elite scholars and technicians, who were from middle class families, had to escape abroad to places such as the United States.

At present, the French wealth flees France. The Hollande administration decided to raise the income tax of people with an income of 100 million yen and above from 41% to 75%. When the CEO of Louis Vuitton applied for citizenship in Belgium, it caused a controversy.

Japan is falling into the same pattern as England did. France is now going through it. The Abe administration will raise the maximum income tax from 40% to 45% with the start of January 2015. If you add residence tax, it’ll come out to 55%, over half of what ordinary citizens make. The high earning population in Japan must give away 70% of its income if you add in the social insurance premiums. At a time when many countries are competing to lower taxes such as Switzerland with 11.5%, Russia with 13%, and Hong Kong with 15%, Japan is moving backwards for some reason.

The maximum inheritance tax is also experiencing a hike from 50% to 55%. This is extremely high when we consider how inheritance tax is 0% in countries like Switzerland, Australia, and New Zealand. The Ministry of Finance is focusing on people over the age of 60 who hold 60% of the 1,500 trillion yen in household financial assets.

“The Communist Manifesto” of Marx and Engels called for strong progressive taxation and the abolition of inheritance rights. It was hostile towards the wealthy, and these ideas have been slowly surfacing in Japan.

There are many traps ready to corner the wealthy. From 2016, the My Number System (a common number system) will start. With this number system, the government will manage everything from tax records to social security benefits, and it will accurately track citizens’ incomes.

In addition, from December of 2013, people with assets of over 50 million yen abroad will be obligated to report those holdings to the National Tax Agency. The Japanese government will record its citizens’ overseas properties including shares, savings, insurance, and real estate.

When personal assets become this transparent, it’ll really become similar to Sweden’s tax collecting system. In Sweden, information with concern to personal income is openly available to everyone, and anyone can call the National Tax Agency to get information on the income of even complete strangers. The purpose is report anyone who could be living an extravagantly undeserved lifestyle. They have set up a “surveillance society” where citizens spy on each other in an effort to snatch tax money from the rich.

Japan is approaching this reality, and in an effort to seek asylum, there are even cases of people making their children and grandchildren abandon their Japanese citizenship insofar as inheritance and donation matters are concerned. Indeed, Japan may already be infected with the British Disease.


The Soviet Union Abandoned the Elderly On a National Scale

Post-war England sought to establish a society where the government took care of everything no matter what kind of work or lifestyle people led, under the slogan of “from the cradle to the grave.” Recalling those times, Prime Minister Thatcher said, “In place of respect for hard work and personal effort, the tendency to encourage laziness and deception took over.” In other words, the British bred masses of lazy people.

If it were pure laziness, then it wouldn’t have been so bad, but when the citizens took on the mentality of beggars, the government reduced them to being like domesticated pets to the extent that they became completely dependent on their government to live. It also happened in the world’s first socialist country, the Soviet Union.

The Soviet Union formed in 1922, and it realized the British vision of “from the cradle to the grave.” Its Constitution asserted the “right of the citizens to be healthy”, but with the state monopoly, public medical care declined to where your life could be in jeopardy if you forgot to bribe the doctors.

Yuri Maltsev at the American Ludwig von Mises Institute wrote about age discrimination in last year’s July report entitled, “What Soviet Medicine Teaches Us”. He reported that in Russia, 60 year old patients have no value, and 70 year old patients are even denied initial treatments. It was worse during the Soviet era when the elderly were abandoned to die on a national scale.

In fact, America is trying to introduce this kind of age discrimination toward senior citizens. Emanuel Ezekiel (Director of the Department of Clinical Bioethics at the U.S. National Institute of Health), who was an architect of the quasi-universal, national healthcare system, or “Obamacare,” which President Obama has been trying to push with all his power, recently announced his thoughts on the matter of age in a medical journal. According to Ezekiel, it’s not a problem to discriminate against senior citizens since, “even if 25 year olds receive (medical care) priority over 65-year-olds, everyone who is 65 years now, has been 25 years of age once.”

Contrary to the ideals in the socialist experiment called the Soviet Union, the government has produced a society that has not valued the elderly. People on earth now realize that the road to hell has been paved by good intentions. Why do you think Russia is still dragging its feet? Don’t you feel America, the Land of the Free, is also eroding away? Japan must not follow in their footsteps.

The economist Hayek, who discussed liberal economics and political philosophy, stated the following in his “The Constitution of Liberty.”

The larger half of those retiring at the end of this century will surely have to rely on the charity of the younger generation. And ultimately the problem will not be solved by ethics, but the youth will answer with the police and the military. A concentration camp for elderly people, who can not support themselves, will be their only means. Youth will be forced to pay for it, and this shall be the fate of the elderly generation.

“A Welfare State is Unsustainable.”
Master Okawa pointed out the fact in an introduction of a recent book, “How Shoin Yoshida Sees the Abe Administration.”

“‘The Integrated Reformation of Tax and Social Security,’ is a Communist Utopian illusion. You must escape the trap of populism and realize that prosperity, built on personal effort, is what makes a true Capitalist Utopian Society.”

Before the advent of Communism, children naturally looked after their parents in every country. Of course, there were problems like the enormity of women’s responsibilities within their households. But the burden would have financially consisted of providing food and shelter and about one to two million yen annually. Only a really rich household would have been able to provide anything more. In case the government supported them, and they were Japanese people for example, annual nursing care would have amounted to 2.81 million yen for senior citizens over 65 years of age. For married couples the costs would have been 5.62 million yen. To have had strangers look after your parents would have obviously required twice the amount of money. Just with this calculation, it should be clear that an “integrated tax and social security reformation”, which raises taxes for social security, will not pan out.

It’s not merely a matter of prices. In his book, “Free to Choose,” the 20th century, premier, American economist Milton Friedman commented on the modern, social security system as follows.

“The social security system is forceful and impersonal.”

“Children help their parents, not out of obligation, but out of love. However, today’s youth are forced to pay for the care of parents and of strangers out of fear and force.”

“Today’s forceful transference of income has weakened family bonds.”

Family bonds have been weakened, and as a result, the government’s burden has become great.

King Alexander of the Netherlands made a speech at a conference on the upcoming year’s government budget submission in September 2013. He claimed, “The welfare state of the latter half of the 20th century has become unsustainable.” The king’s speech was in accordance with the current Rutte administration’s speech policy, and established the need for new policy in the Dutch government.

The king also said in his address “the classical welfare state is slowly but surely evolving into a participatory society. Everyone who is able will be asked to take responsibility for his or her own lives and immediate surroundings.” He explained that a participatory society is “where the citizens look after themselves, and are able to come up with solutions for social problems such as the care of retirees.”

It’s not only in the Netherlands that the welfare state has become unsustainable. It’s been the same for countries that suffer from budget deficits such as Japan, U.S., and other developed nations.


Aim for a Capitalistic Utopia

As Prime Minister Thatcher insisted, “You don’t work, you don’t eat.” People should return to the basics in life. No matter how much money the government gives to the poor, there’s no guarantee that they can escape poverty. Thatcher said, “It doesn’t help in the long run to do for people what they can do for themselves, and what they must do for themselves.” What is necessary is a sense of personal responsibility and a willingness to work diligently.

The politicians and bureaucrats of Japan, who have been the creators of this baroque social security system, will eventually have to take responsibility, and the public pension, medical, and nursing care system will either be dismantled or privatized.

Citizens must defend themselves. Young people must plan out their lives, work diligently, and build up assets. Another path is to bring up a child who can dutifully attend to you in old age. The elderly and those who are nearing old age should, if possible, rouse themselves and think about making money to the point where they might feel secure.

Of course, it’s the job of the government to produce a safety net to help people who have failed economically, people who could not get help from their families, or individuals who could not work at all. “A life free from hunger, cold, and being rained on, and medical care that plucks out the pain of disease,” are essential for everyone.

An “integrated reformation of tax and social security,” will not work, and it is a complete illusion. Through a resurrection of the spirit of personal responsibility and diligent work, and with the aim of establishing a “Capitalistic Utopia,” Japan, the U.S. and other developed nations have the combined potential to prevent a new “hell where young people abandon their elderly.”

(Jiro Ayaori)

The Illusion of an “Integrated Reformation of Tax and Social Security”
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