The State, Money, and You

P5　—　How do taxes, pensions, and social insurance connect to your own money?

The three gateways for public funds—taxes, pensions, and insurance. While the systems differ by country, the principles are universal. We will examine your contributions and benefits from the system's perspective.

Supervised by: Mitsuru Hayama　／　Reading time (main text): About 10 min (4,833 characters of text at 500 chars/min; exercises and readings not included)　／　Beyond the text: 6 exercises · 2 coins · 3 readings

What this course teaches you to do

• Be able to classify taxes into three categories—income, consumption, and assets—and identify which category the taxes you pay fall into.
• Be able to distinguish between the pay-as-you-go and funded systems for public pensions, and read the projected amount on your pension statement as a nominal figure.
• Be able to determine the co-payment rates and caps for medical and long-term care based on age and income brackets.
• Be able to translate news about public finance, government bonds, and foreign exchange into the pathways that affect your own financial burdens and benefits.

Lessons (8)

1. The three gateways of tax — income, consumption, and assetsTaxes are classified in two ways: by who imposes them and by the phase in which they are collected. The phases are income, consumption, and assets.
2. How Pensions Work — The Pay-As-You-Go and Funded SystemsJapan's public pension system is primarily based on the pay-as-you-go model. Premiums paid go to current recipients, not into your own account.
3. Insurance Premiums in Practice — The Rate and Amount You PayLook not only at the rate, but also at the denominator and the cap. Japan applies 18.3 percent to standard remuneration; the US applies 12.4 percent to earnings up to a cap.
4. Starting Age — Early and Deferred CollectionThe starting age determines the lifelong rate. In Japan, it's a 0.7 percent increase or 0.4 percent decrease per month.
5. Medical and Long-Term Care Costs — The Percentage Paid at the Point of ServiceThe co-payment percentage is determined by age and income, and there is a monthly cap. Long-term care premiums are paid from age forty, with a 10% co-payment as a general rule.
6. Public Finance and Government Bonds — A Quarter of Expenditures is DebtOf the 122.3 trillion yen in expenditure, social security accounts for one-third and national debt service for one-quarter. One-quarter of revenue is new borrowing.
7. How Exchange Rates Affect Daily Life — Strong Yen and Weak YenA strong yen means one yen can buy more dollars. The exchange rate is set by supply and demand, affecting household finances through import prices and the following year's pension revision.
8. Pensions and Prices — Nominal Amounts and Real ValueThe estimated amount on the statement is nominal. If the revision rate is lower than the inflation rate, purchasing power decreases. The Macroeconomic Slide does not lower the nominal amount.

Readings (3)

• The Satsuma Rebellion and inflation　Japan　1876　Tokyo
  Sections 2 and 3. Meiji 9 (1876), When Samurai Stipends Were Converted to Government Bonds. Whether one can live on the interest depends on the denominator.
• The paper they printed too much of　France　1795　A street corner, Paris
  Section 8. 1795, When Those on Fixed Pensions Lost Out to Paper Money Depreciation.
• The costs of the wars with China and Russia　Japan　1894–1895　Tokyo, the Finance Ministry
  Section 6. Meiji public finances: Borrowing through government bonds to cover expenditures that could not be met by taxes.

Assessment

6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.