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Yoshimi Adachi

The Economics of
Tax and Social
Security in Japan
The Economics of Tax and Social Security in Japan
Yoshimi Adachi

The Economics of Tax

and Social Security in Japan

123
Yoshimi Adachi
Faculty of Economics
Konan University
Kobe, Hyogo
Japan

ISBN 978-981-10-7175-1 ISBN 978-981-10-7176-8 (eBook)

https://doi.org/10.1007/978-981-10-7176-8
Library of Congress Control Number: 2017959901

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Preface

The Comprehensive Reform of Social Security and Tax: Japan (hereafter The
Comprehensive Reform) was implemented with the aim of stabilizing social
security, securing stable financial resources, and reconstructing finances. Social
security accounts for a large proportion of the expenditure items in the finances of
not only Japan but also other developed countries. Alongside a population aging
remarkably fast, Japan’s social security expenditure for the elderly, including
pensions, medical care, and long-term care, have continued to increase and the
country is now facing the problem of how to reduce this expenditure.
Among the developed countries, Japan has an economy that is in a serious
condition and is impinging on the state’s ability to support its social security system
through insurance contributions and tax revenues. Therefore, to fulfill its fiduciary
duty, the government is relying on government bonds. The question then arises of
how to position the tax system to secure stably financial resources to overcome such
structural weaknesses. There have long been arguments over determining the main
basis for taxation: whether consumption and income are preferred or a combination
of both is desirable. Most current arguments favor the selection of income tax and
general consumption tax. However, the trust in income tax has eroded, while the
comprehensiveness of the taxation base and an accurate supplementation rate are
both difficult arguments to deal with. In addition, the effects of a progressive tax
rate structure on economic activities are notable.
Therefore, in The Comprehensive Reform, importance is given to securing stable
financial resources, and consumption tax is cited as the main financial resource. The
idea of raising the consumption tax rate to secure the financial resources required
for social security has been under consideration for quite some time.In the second
half of the 1970s, it was foreseen that the increase in social security expenditure due
to an aging population would pose a threat to finances in the future. In 1979, the
Liberal Democratic Party’s (LDP’s) Ohira administration aimed to introduce a
general consumption tax, and then in 1987, the Nakasone administration proposed
the initiation of a broad-based indirect tax, a sales tax; eventually neither was
introduced. In 1988, the Takeshita administration enacted the Consumption Tax
Law and introduced a 3% consumption tax from April 1989. In February 1994, the

v
vi Preface

Hosokawa administration, which took over from the LDP administration, proposed
raising the tax rate to 7%, changing the name to National Welfare Tax, as a financial
resource for social security, but in the face of opposition, the proposal was with-
drawn. After the creation of a coalition that included the LDP, in 1994 the
Murayama administration decided to raise the tax rate to 5%, which came into effect
in April 1997. The Asian currency crisis began in the same year (1997) and Japan
slipped into an economic recession.
The facts that the cabinet collapsed on the introduction of the consumption tax
and that the hike in the tax rate overlapped with the timing of the Asian currency
crisis are reasons that the Japanese people have a negative view of the consumption
tax, and it is Japan’s political Achilles heel. In 2008, the Hatoyama government
of the Democratic Party of Japan (DPJ) came to power and pledged it would not
raise the consumption tax rate. However, it was unable to secure sufficient financial
resources for social security, and the DPJ administration was forced to change its
policy.
In 2012, the Noda Cabinet submitted a bill to raise the tax rate to 8% in 2014 and
then to 10% in 2015, and the bills were passed. Subsequently, in December 2013,
once again, the administration changed hands, and an LDP–Komeito coalition
government came into power.
In April 2014, the Abe administration raised the consumption tax rate to 8%.
However, in November of the same year, the government announced its decision to
postpose the scheduled increase to 10% in 2015 by a year and a half.
Even during this period, social security expenses continued to increase. The
system of long-term care insurance was introduced from fiscal 2000. With a rapidly
aging population on the one hand, the need for social security services is rising; but
on the other hand, the biggest challenge facing Japan is how to secure stable
financial resources to pay for social security.
Several measures are currently being undertaken through The Comprehensive
Reform to address this challenge. Certainly, the consumption tax is an important
financial resource for social security, but at this time it is important to consider not
only the consumption tax, but also individual indirect taxes. Having said that, the
consumption tax is not the only financial resource for social security. If the con-
sumption tax is considered to be the only financial resource in The Comprehensive
Reform, then the outlook becomes extremely narrow.
Important financial resources for social security are insurance contributions and
self-payments (primarily, the amount paid by individuals themselves). Income
taxation also plays an important role as a financial resource and it must be con-
sidered widely in the framework of The Comprehensive Reform. In fact, income
taxation largely supports Japan’s finances, including social security finances, as a
fundamental tax.
In this book, we consider the approach to be adopted for The Comprehensive
Reform in order to analyze the methods for allocating the tax burden, which is a
financial resource for social security, and the enormity of the burden social security
will place on households, companies, and the government. The prologue explains
the point of view taken in the book, the specific analyses in each chapter, and the
Preface vii

approach for The Comprehensive Reform in the final chapter. As the author, I will
be extremely happy if this book contributes toward the progress of that reform.
*** *** ***
In terms of the conclusions I reach in this book, I am grateful for the useful
comments that I received from many people, even at different stages of publishing
each chapter as research theses and presenting reports at conferences. While writing
this book, I received several research grants that have supported me up to the
present. The grants include those from: the Japan Society for the Promotion of
Science KAKENHI Grant-in-Aid for Scientific Research, Fundamental Research
(C) “Verification of policies to support women’s employment, childbirth, children,
and childcare in a declining birth-rate society”; the Univers Foundation Research
Grant, “Study on households’ consumption and burden of medical care and
long-term care services”; and Government Finances, Finance, and Financial
Legislation Research Fund Research Grant, “Analysis of the financing of social
security services in local governments”.
I also received assistance for the publication of this work as an academic book
from the Japan Society for the Promotion of Science fiscal 2014 and fiscal 2015
Grants-in-Aid for Scientific Research. It would not have been possible to publish
the book without these grants. I would like to thank all the people concerned,
including those at the grant-related organizations and those who reviewed my
applications and allocated the grants. Finally, as the author I would like to use this
opportunity to express my gratitude to the teaching faculty and employees at Konan
University who provided me with such a satisfying education and research
environment.

Kobe, Hyogo, Japan Yoshimi Adachi

Spring 2018
The original version of the book was revised:
Author corrections have been incorporated.
The erratum to the book is available at
https://doi.org/10.1007/978-981-10-7176-8_11

ix
Contents

1 Prologue: Outlook and Challenges for Social Security Finances ... 1

1 Social Security and Consumption Tax . . . . . . . . . . . . . . . . . . ... 1
2 Current State of Social Security Finances . . . . . . . . . . . . . . . . ... 4
3 Japan’s Difficult Economic and Financial Conditions
Will Likely Continue into the Future . . . . . . . . . . . . . . . . . . . ... 9
4 With Economic Growth, Increasing the Tax Burden
and Reducing Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 15
5 The Perspective of This Book . . . . . . . . . . . . . . . . . . . . . . . . ... 17

Part I Tax and the Financial Burden of Social Security

2 Redistribution Effects of Income Taxation and Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 21
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 21
2 Previous Research on the Redistribution Effects of Income
Taxation and Insurance Contributions . . . . . . . . . . . . . . . . ...... 23
3 Households’ Burden Rate from the Representative
Household Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4 Analytical Method Using a Lifecycle Model . . . . . . . . . . . . . . . . . 29
4.1 Household Lifecycle Model . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.2 The Theil Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5 Methodology for Processing and Analyzing Data . . . . . . . . . . . . . 33
6 Measurement Methods Used in Analysis . . . . . . . . . . . . . . . . . . . . 34
6.1 Measurement of Income from Labor . . . . . . . . . . . . . . . . . . . 34
6.2 Measurement of Pension Income . . . . . . . . . . . . . . . . . . . . . 35
6.3 Measurement of Income Taxation and Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 38
6.4 Theil Scale and Measurement of the Redistribution
Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 41
7 Results of Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 41

xi
xii Contents

8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9 Addendum: Marginal Effective Tax Rate and the Lifetime Burden
Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3 The Burden of Indirect Taxation and Consumption Tax
by Income Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
2 Previous Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3 The History of Consumption Tax in Japan . . . . . . . . . . . . . . . . . . 69
4 An Overview of Indirect Taxation in Japan . . . . . . . . . . . . . . . . . . 70
4.1 National Indirect Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.2 Local Indirect Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5 Estimation of Indirect Tax Burdens by Income Group . . . . . . . . . . 74
5.1 Data Tendency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
5.2 Estimation Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6 The Burden of Indirect Taxation by Income Group . . . . . . . . . . . . 81
7 The Effects of a Consumption Tax Increase on Indirect Tax
Burden Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 83
8 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 86
8.1 Addendum. Measuring the Proportions of Household
Indirect Tax Burdens . . . . . . . . . . . . . . . . . . . . . . . . . ..... 88
4 Effects of Spousal Deduction on Household Labor Supply . . . . . . . 91
1 Social Background to Women’s Employment . . . . . . . . . . . . . . . . 91
2 A Neutral Tax and Social Security Systems . . . . . . . . . . . . . . . . . 96
3 Previous Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
4 Estimation Model and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.2 Estimation Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
5 Results of Estimations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Part II Economic Analysis of Social Security Policy

5 Insurance Contribution Burden Structure: National Health
Insurance System and Latter-Stage Elderly Medical
Care System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
2 Burden Structure of National Health Insurance Contributions . . . . . 117
2.1 The National Health Insurance System as Seen from
the Relationship Between Benefits and Burdens . . . . . . . . . . 118
2.2 The Financial Mechanism of National Health Insurance . . . . . 122
2.3 Estimation Method for Factor Analysis of National
Health Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . 126
2.4 Factor Analysis and Regional Disparity in National
Health Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . 130
Contents xiii

2.5 Effects of Tax Reductions and Exemptions and the

Relationship Between Benefits and Burdens . . . . . . . . . . . . . 134
3 Burden Structure of Latter-Stage Elderly Medical Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
3.1 Latter-Stage Elderly Medical Care System as Seen from the
Relationship Between Benefits and Burdens . . . . . . . . . . . . . 137
3.2 Financial Mechanism of the Latter-Stage Elderly Medical
Care System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
3.3 Estimation Method for Factor Analysis of the Latter-Stage
Elderly Medical Insurance Contributions . . . . . . . . . . . . . . . . 142
3.4 Factor Analysis and Regional Disparity in the Latter-Stage
Elderly Medical Insurance Contributions . . . . . . . . . . . . . . . . 145
3.5 Effects of Tax Reductions and Exemptions on Latter-Stage
Elderly Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . 147
4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
6 Analysis of the Regional Disparity in Long-Term Care
Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
2 Overview of Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
3 Estimation Method for Factor Analysis of Long-Term Care
Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
4 Factor Analysis and Regional Disparity of Long-Term Care
Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
5 The Benefits and Burdens of Long-Term Care Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
7 Analysis of the Payment Rate of National Health Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
2 Adjustment of Finances and Methods of Paying Insurance
Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
3 Previous Research on the Payment of Insurance Contributions . . . . 182
4 Analysis of the Adjustment of Finances, Method of Paying
Insurance Contributions, and Insurance Contributions
Payment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
5 Results of Estimations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
5.1 Results of Estimations of the Adjustment of Finances
and Insurance Contributions Payment Rate . . . . . . . . . . . . . . 192
5.2 Results of the Estimation of the Methods of Paying
Insurance Contributions and the Payment Rate
of Insurance Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 196
6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
xiv Contents

8 Expanding the Scope and Improving the Efficiency of National

Health Insurance Administrative Work . . . . . . . . . . . . . . . . . . . . . 205
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
2 Positioning This Paper Among Existing Research Studies . . . . . . . 208
3 Analytical Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
4 Results of Estimations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
9 Expanding the Scope and Improving the Efficiency
of Long-Term Care Insurance Operations . . . . . . . . . . . . . . . . . . . 219
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
1.1 Overview of Long-Term Care Finances . . . . . . . . . . . . . . . . 219
1.2 Existing Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
2 Analytical Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
2.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
2.2 Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
2.3 Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
3 Results of Estimations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
3.1 Long-Term Care Administrative Work . . . . . . . . . . . . . . . . . 231
3.2 Long-Term Care Benefits Operations . . . . . . . . . . . . . . . . . . 234
4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
10 Guidelines for Policy Evaluation and Post-integration Reforms . . . 239
1 A Policy Evaluation of the Tax and Social Security Burden . . . . . . 240
2 Guidelines for the Period Post “The Comprehensive Reform
of Social Security and Tax” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
2.1 Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
2.2 Indirect Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
2.3 Social Security Burden . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Erratum to: The Economics of Tax and Social Security in Japan . . . . . E1
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Chapter 1
Prologue: Outlook and Challenges
for Social Security Finances

1 Social Security and Consumption Tax

As shown in the Fig. 1, since the basic framework of the social security system in
Japan was built in the 1960s, the socioeconomic situation which is the premise for
the social security system has dramatically changed. While social security benefits
have risen rapidly as a result of the population aging, the persistently weak eco-
nomic growth has invited the fall in the tax revenues after the mid-1980s of the
bubble levels and social insurance premiums have failed to catch up with the
benefits expansion with the premium-benefits gap widening. Despite the fact that
government has taken initiatives to control social security benefits, the gap between
benefits and premiums continues to widen.
The gap has been covered not only with tax revenues but also with massive debt
issues. Over the past two decades, Japan's gross public debt has more increased to
well over 200% of GDP. With gross government debt of 219% of GDP in 2016,
Japan's fiscal situation puts the economy at risk. It is important thesis for the revenue
measures to bring down the high level of public debt in Japan. If this situation does
not change, it may become difficult to sustain the present social security system so
that we could support livelihood of citizens including elderly people and contribute
to the world’s highest life expectancy. Therefore, we must secure stable financial
resources for maintaining the social security system to improve Japan’s fiscal situ-
ation which is in a more difficult situation than in foreign countries.
In Japan, the year 2014 brought about major developments for social security
finances, with the implementation of The Comprehensive Reform of Social Security
and Tax (hereafter The Comprehensive Reform), which had been a concern for a
long time. The Comprehensive Reform of Social Security and Tax Systems was
conducted from the perspective of aiming to simultaneously accomplish securing
stable revenues to finance social security and implementing fiscal consolidation,
and the government will comprehensively and intensively establish a sustainable
social security system that has a balance between benefits and burdens.

© Springer Nature Singapore Pte Ltd. 2018 1

Y. Adachi, The Economics of Tax and Social Security in Japan,
https://doi.org/10.1007/978-981-10-7176-8_1
2 1 Prologue: Outlook and Challenges …

Fig. 1 The whole picture of the reform of social security Source Based on “Comprehensive
Reform of Comprehensive Reform of Social Security and Tax,” by the Department of the Ministry
of Health, Labour and Welfare, Japan

Fiscal consolidation should be accompanied by introducing the earned income

tax credit to assist the working poor, increasing the tax on capital income and
brooding the base of the inheritance tax, and especially hiking in the consumption
tax rate toward the OECD average. The biggest change that occurred was the hike
in the consumption tax rate implemented on April 1, 2014. The tax rate rises to 8%
during the administration of Prime Minister Abe Shinzō. In June 2016, the Abe
Cabinet announced that the consumption tax rate would be raised to 10%. The
consumption tax had been set to increase to 10%, up from 8%, effective April 2017.
However, the prime minister decided to postpone the planned increase in the
consumption tax rate given certain concerns about the economy. The prime minister
on June 1, 2016 announced that a scheduled increase in the rate of the consumption
tax will be postponed until October 1, 2019.
Rising the consumption tax in Japan would generate the significant revenue and
play an important part for the other countries. Many advanced economies face the
rising social security spending according with the aging population. Japan’s social
security finances have followed a consistently deteriorating path, but it can be
assumed that they are approaching a major turning point. Therefore, in The
Comprehensive Reform, importance is given to securing stable financial resources,
and consumption tax is cited as the main financial resource. The idea of raising the
consumption tax rate to secure the financial resources required for social security
has long been under consideration.
In the second half of the 1970s, it was foreseen that the increase in social security
expenditure due to an aging population would pose a threat to finances in the future.
In January 1979, the Liberal Democratic Party’s (LDP) Ohira administration aimed
1 Social Security and Consumption Tax 3

to introduce a “general consumption tax” to improve public finances, but aban-

doned the plan in the face of a severe public backlash in the October general
election. Then in February 1987, the Nakasone administration proposed the initi-
ation of a broad-based indirect tax, the “sales tax” to the Diet, but abandon it in May
due to widespread public opposition.
In December 1988, the Takeshita administration enacted the Consumption Tax
Law and introduced a 3% consumption tax from April 1989. In June 1989, Prime
Minister Takeshita is forced to resign in the wake of an insider-trading and cor-
ruption scandal involving the human-resource company Recruit. In February 1994,
the Hosokawa administration, which took over from the LDP administration,
proposed raising the tax rate to 7% and changing the name of the tax to “National
Welfare Tax,” as a financial resource for social security; however, the plan was
opposed and withdrawn the day due to a lack of coordination within the coalition
government led by Prime Minister Hosokawa Morihiro. After the creation of a
coalition that included the LDP, in November 1994 the Murayama administration
decided to hike the consumption tax rate from 3% to 4% and add a regional
consumption tax of 1%, bringing the total to 5%. The tax rate to 5% came into
effect in April 1997 under Prime Minister Hashimoto Ryūtarō. The Asian currency
crisis began in the same year (1997) and Japan slipped into an economic recession.
Every time the introduction of the consumption tax increase tax is considered,
the cabinet collapsed. So raising the consumption tax rate has been a risky policy,
and it is Japan’s political “Achilles heel.” In 2008, the Hatoyama government of the
Democratic Party of Japan (DPJ) came to power and pledged it would not raise the
consumption tax rate. However, it was unable to secure sufficient financial
resources for social security, and the DPJ administration was forced to change its
policy.
In September 2009, the Democratic Party of Japan, led by Hatoyama Yukio, was
elected to set up an election declaration pledging no consumption tax hike for 4
years. After Naoto Kan took over the leadership of the Democratic Party, just
before the House of Representatives election, the Democratic Party announced that
the consumption tax would be raised to 10%, so the Democratic Party was defeated
in the election in June 2010. In June 2012, the Noda Cabinet submitted a bill to
raise the tax rate to 8% in 2014 and then to 10% in 2015, and the bills were passed
in the upper house plenary session. Subsequently, in December 2013, once again,
the administration changed hands, and an LDP-Komeito coalition government came
into power. In April 2014, the Abe administration raised the consumption tax rate.
From the importance of balancing economic revitalization with fiscal consolidation,
securing the comprehensive sustainability of social security and tax systems, and
maintaining Japan’s credibility as a result of comprehensive considerations of the
economic situation, etc., the Abe administration raised the consumption tax rate
from 5% to 8% in April 1, 2014.
This is based on Article 18 of Supplementary Provision of the Act on Partial
Revision, etc. of the Consumption Tax Act for Comprehensive Reform of Tax to
Secure Stable Financial Resources for Social Security, etc. Hereinafter referred to as
the “Comprehensive Tax Reform Act” and Article 19 of Supplementary Provision
4 1 Prologue: Outlook and Challenges …

Fig. 2 Total tax revenue and consumption tax Source Based on “Total tax revenue and con-
sumption tax” by the Department of the Ministry of Finance, Japan

of the Act on Partial Revision, etc. of Local Tax Act and Local Allocation Tax Act
for Comprehensive Reform of Tax to Secure Stable Financial Resources for Social
Security, etc.” However, in November of the same year, the government announced
its decision to postpose the scheduled increase to 10% in 2015 by a year and a half.
Figure 2 shows the trends in total tax revenue and consumption tax.
Even during this period, social security expenses continued to increase. The
system of long-term care insurance was introduced from fiscal 2000. On the one
hand, with a rapidly aging population, the need for social security services is rising;
but on the other, the biggest challenge facing Japan is how to secure stable financial
resources to pay for social security. A recent question that has been raised is
whether the hike in the consumption tax rate to 10%, which is scheduled for
October 2019, will be sufficient to provide the financial resources needed for social
security in the future.
However, raising the consumption tax will not mobilize sufficient financial
resources for social security. In future, due to a rapidly aging population, the costs
required for social security will continue to grow and, therefore, it will be necessary
to continuously strive to secure the financial resources for social security.

2 Current State of Social Security Finances

In this section, we will examine the overall situation for social security finances in
Japan. Figure 3 shows the trends in social security benefits and income from in-
surance contributions and international comparison of Burden Ratio. Social security
benefits include “pensions,” “medical care,” and “other welfare.” Income from
2 Current State of Social Security Finances 5

International Comparison of Burden Ratio

Social security burden ratio Tax burden ratio Budget deficit versus national income ratio
80.0

70.0

60.0

50.0
Trillion yen
40.0
100
Socialsecurity 30.0
benefits National
revenue,
80 20.0
etc.
Revenuefrom 10.0
insurance
60 contributions 0.0
Japan Japan USA UK Germany Sweden France
-10.0 (2017) (2014) (2014) (2014) (2014) (2014) (2014)
Employer
40 contributions -20.0

20
Insured persons'
contributions

- Fiscal
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

year

Fig. 3 Trends in social security benefits and income from insurance contribution and international
comparison of Burden Ratio Source Based on “Social Security Costs Statistics,” by the National
Institute of Population and Social Security Research, Japan and in OECD “Social Expenditure
Database” and other resources

insurance contributions consists of employer contributions and insured person’s

contributions.
Along with the advancement in the aging society, the amount of social security
benefits payable has been increasing significantly, while the amount of social
insurance premiums receivable has been flat, resulting in the widening of the gap
between social security-related expenditure and revenue. Although the social
security system in Japan is based on social insurance system, the gap between social
security benefits and revenues of social insurance contributions has been subsidized
by the central and local governments. The burden of the central government
increases by one trillion yen level every year and most of its financial resources
depend on public debts. This is the main reason of worsening fiscal deficit. If the
current situation is left unaddressed, it would be difficult to maintain the existing
social security system in the future.
The Japanese government continues to run a budget deficit, as its expenditure
exceeds its tax revenue. The gap between the two has expanded since the 2008, due
largely to a fall in tax revenue associated with the economic downturn. This gap has
been financed by issuing debt of government bonds. The outstanding amount of
Japan’s government bonds has increased year after year, reaching 865 trillion yen at
the 2017, which is 15 times as large as the annual tax revenue. This accumulated
debt will impose heavy burden on future generations.
The causes behind an increase in the outstanding government bonds after the
1990, in which Japan temporarily ended reliance on special deficit-financing bonds.
While in the 1990s the growth in expenditure was mainly attributable to an increase
in public works-related expenditures, recent increase in expenditures has been
6 1 Prologue: Outlook and Challenges …

International Comparison of Social Security Benefits by Division (to GDP)

(%) Pension Medical care Welfare and others
35.00

30.00

25.00 8.32
7.77 11.87
20.00
3.40 7.77 7.49
Rate of increase in Medical Care Rate of increase in Pension 15.00 2.43 7.85
Trillion yen Rate of increase in Other Welfare Nominal GDP growth rate
Increase rate 6.30 6.58
120 70% 10.00 7.38 6.84

12.94
60% 5.00 9.55 10.70
100 9.25
6.69 6.71
Other welfare
50% 0.00
Japan USA UK Germany Sweden France
80 (Aging Population
40% Ratio (2007)) (21.5%) (12.6%) (16.0% ) (20.2% ) (17.4%) (16.6%)

Pension
60 30%

20%
40
10%
20
0%
Medical
- -10%
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014 Fiscal
year

Fig. 4 Trends and rate of increase in items constituting social security benefits and international
Comparison of Social Security Benefits by Division (to GDP) Source Based on “Social Security
Costs Statistics,” National Institute of Population and Social Security Research; “National
Accounts Statistics” by the Cabinet Office, Government of Japan and in OECD “Social
Expenditure Database” and other resources

largely driven by (i) an increase in social security-related expenditures due to

population aging; and (ii) an increase in Local Allocation Tax Grants, etc, due to
deterioration in local public finance. On the revenue side, the government revenue
has decreased mainly because of a fall in tax revenues because of the economic
downturn and tax cuts.
There are some trends in items constituting social security benefits, namely
“pensions,” “medical care,” and “other welfare.” Long-term care is included under
“other welfare.” Within social security benefits, “pensions” has the largest share,
followed by “medical care” and “other welfare.” Figure 4 shows the trends in the
rate of increase in each of these items within social security benefits and
International Comparison of Social Security Benefits by Division (to GDP). Fiscal
year 1973, which shows a high rate of increase, corresponds to “the first year of
welfare” when the aim was to supplement social security benefits. From the high
growth rate of “pensions” of 60%, and of “medical care” and “other welfare” at
40%, we understand that social security benefits have increased.
Figure 4 also shows the nominal GDP growth rate. We will compare the
nominal GDP growth rate and the rates of increase of items constituting social
security benefits. There was a period in the 1980s when the rate of increase of
“other welfare” was below the nominal GDP growth rate, but apart from this period,
nominal GDP growth rate has clearly been lower than the rate of increase in social
security benefits. The reason for a high rate of increase in “other welfare” in fiscal
2000 is that long-term care was introduced during that year.
2 Current State of Social Security Finances 7

What we understand from the trends in nominal GDP growth rate and the rate of
increase of social security benefits is that during every period in the past, social
security benefits increased at a higher rate than the nominal GDP growth rate. No
country can have social security benefits that exceed its nominal GDP, and a
situation in which the rate of increase in social security benefits is higher than the
nominal GDP growth rate cannot continue indefinitely. Therefore, it is not possible
to say that Japan can sustain the current level of benefits in its social security
system. To ensure the sustainability of social security benefits, at the very least the
GDP growth rate must match the rate of increase of social security benefits. In
addition to raising the consumption tax rate, securing other financial resources to
increase the efficiency of social security benefits is an important task.
Generally, the social security burden is comprised of self-payments and insur-
ance contributions. Essentially, self-payments are the burden on the household
when receiving medical care and long-term care services. If the self-payment ratio
is high to secure financial resources, the social security benefits would be sup-
pressed. However, it cannot be assumed that increasing the self-payment ratio and
controlling the consumption of social security services is the preferred option.
There is a risk that more people will suffer from serious medical conditions if their
receipt of medical care services is limited by a high self-payment ratio. A high
self-payment ratio also places a heavy burden on low-income earners.
Self-payments are considered as either a fixed-rate burden, fixed-amount burden,
or a combination of the two. The fixed-rate burden is linked proportionally to the
monetary amount received for the social security services, and the relationship
between benefits and burdens is clear. Primarily, the fixed-amount burden relates to
the receipt of social security services. Thus, self-payments are considered as a
burden placed on the beneficiary.
The main financial resource for social security benefits is income generated from
insurance contributions, which are divided into employer contributions (the portion
contributed by companies) and insured person contributions (those made by the
insured person). That is, half of the Social Insurance tax is deducted from employee
salary and the other half is paid by the company.
In Japan, insurance contributions take the form of contributions for pension
insurance, health insurance, and long-term care insurance. Of these insurances, all
people is enrolled in the public pension and health insurance programs. This uni-
versal coverage in public pension and health insurance is a main characteristic of
the Japanese social security system. Citizens aged 40 and over are covered by the
long-term care insurance, and employees are also covered by the employment
insurance and work-related accident insurance.
The social insurance systems mentioned above are financed by social insurance
premiums and supplemented by the tax revenue in forms of subsidy. The social
insurance premiums are shared by all insured according to their ability to pay the
level of income. Thus, the function of social insurance is to share the risk. Unlike
self-payments, insurance contributions are not associated with the receipt of social
security services at the current point in time, but are linked to the possibility of and
eligibility to receive them in future. In the case of pension insurance contributions,
8 1 Prologue: Outlook and Challenges …

if a person does not pay contributions while working, he/she cannot receive pension
benefits after retirement (pension age). In principle, if people do not pay contri-
butions for both health insurance and long-term care insurance, they cannot receive
medical care services or long-term care services.
For insurance, the contribution history is decisively important, and if there is no
history of contributions, the person cannot avail of social security services. One of
the features of social security is that the contribution history relates to the right to
receive it.1 In terms of being able to receive social security services only by sub-
scribers who have continued paying social insurance premiums in advance, the
point that the social security system is different from the tax system is that the
relationship between benefits and burdens is consistent. The right to receive social
security services derives from insurance contributions, and in this sense, the rela-
tionship between benefits and burdens is constructed.
What are the conditions for tax? In general, we cannot see a relationship between
specific public services and benefits.2 For example, we cannot specify which tax-
ation financial resources are allocated to police services or to fire services. There are
also no records on tax burdens that are linked to public services, as is the case with
the history of insurance contributions. Even within the various taxes, under the
general provisions of the budget, consumption tax is currently allocated as a welfare
financial resource. Also in The Comprehensive Reform, which is currently in
progress, the portion obtained from the hike in consumption tax rate has been
determined to be a financial resource for social security expenses.3
There have been various debates on whether consumption tax is a suitable
financial resource for social security. Specifically, the relationship between receipt
of social security services and the burden of consumption tax has been debated. It
would seem difficult to recognize a relationship in which the higher the con-
sumption monetary amount is, and the greater the burden of consumption tax on the
household, the greater the receipt of social security services. Therefore, it is difficult
to find a clear relationship between benefits and burdens in the consumption tax, as
is the case for self-payments and insurance contributions.
Inherently, self-payments and insurance contributions, in which the relationship
between benefits and burdens is clear, are preferable from the perspective of

1
The right to benefits is not a guarantee of an absolute amount of social security services. For
example, in the public pension, a macroeconomic slide could reduce pension benefits in the future.
2
In the case of special-purpose tax, it is strongly related to specific public services, but in Japan, the
share of tax revenue for special-purpose tax is not that great, so it is not considered here.
3
As of fiscal 2015, within the consumption tax rate of 8%, the national consumption tax rate is
6.3% and the local consumption tax rate is 1.7%. Within the tax revenues from the national
consumption tax, excluding the 22.3% that represent the financial resources for local allocation tax
subsidies (the allocation tax rate), 76.7% is the financial resource for social security. Further,
within the local consumption tax rate of 1.7%, a 0.7% portion (this portion was raised in April
2014) is allocated to social security for local governments. Even when the hike in the tax rate to
10% scheduled for October 2019 comes into effect, it has been determined that the portion gained
from this rise in tax rate will be the allocated to social security. At this time, the plan is to reduce
the allocation tax rate of consumption tax to 19.5%.
2 Current State of Social Security Finances 9

benefits and burdens because they make up for the deficit in the financial resources
available to social security services. As shown in Fig. 3, in recent years, revenue
from insurance contributions has hit a ceiling and has ceased to increase, so there
are limitations to relying on insurance contributions. The approach of increasing the
self-payment ratio should be considered, but if it is increased excessively, people
will avoid using or will be unable to receive the social security services they need to
maintain their quality of life. Within the different types of taxes, we should consider
the reasons for choosing consumption tax as the financial resource for shoring up
the social security system. Certainly, there is no direct relation between the amount
of consumption tax burden and the receipt of social security services. It can be
assumed that social security services for medical care, long-term care, and pensions
will be the components that most people have experience of receiving in the past or
will probably get in the future. In considering with the people's life cycle, social
security services are services that everyone receives over their lifetime, while
consumption tax is the tax that everyone pays over their lifetime. In this sense,
consumption tax and social security services are in a relationship of benefit and
burden.4 In this sense, we can perceive a loose relationship between the benefits and
burdens of consumption tax and social security services.
In The Comprehensive Reform, one of the objectives for the hike in con-
sumption tax is to supplement the portion of “national revenue” that relies on the
issue of deficit government bonds. Compared to self-payments and insurance
contributions, the relationship between consumption tax and receipt of social
security services is weak, but it is also implicit that it is the “better” choice com-
pared to that between the latter and deficit government bonds. Presently, the current
generation benefits from social security services and deficit government bonds are a
burden that will be placed on future generations (their children and grandchildren).
Therefore it is also necessary to understand “The Comprehensive Reform” of Social
Security and Tax” from this time-axis viewpoint.

3 Japan’s Difficult Economic and Financial Conditions

Will Likely Continue into the Future

As can be seen from Fig. 3, social security benefits are trending upward on a scale
of several trillion yen each year, surpassing 100 trillion yen in recent years. In
contrast, income from insurance contributions has remained unchanged below 60
trillion yen. Against this background, the slump in income from insurance contri-
butions is considered to be attributable to factors such as the prolonged recession,
changes to employment structure, declining birth rate, and income inequality.
The shortfall between social security benefits and income from insurance con-
tributions has been greater than 40 trillion yen in recent years. To supplement for

4
It cannot be assumed that every person pays income tax.
10 1 Prologue: Outlook and Challenges …

this deficit in financial resources for social security, financial resources other than
income from insurance contributions have been introduced, such as self-payments
for medical care and long-term care. However, insurance contributions and
self-payments alone cannot cover social security benefits. Thus, “national revenue”
was introduced. This means that the state is supplementing the financial resources
for social security. The problem, as shown in Fig. 3, is that national revenue has
been expanding year by year. Moreover, financial resources for “national revenue”
are not only tax revenues, but include deficit-financing government bonds issued to
compensate for the revenue shortfall as well.
There are several choices available by means of which financial resources for
social security could be secured. As shown in the book titled “The Economics of
Tax and Social Security in Japan”, in order to secure the necessary financial
resources for social security, it is important to examine ways to secure resources
from taxes and social security burden. In Japan, social security benefits and con-
tributions, healthcare expenditures, public pension expenditures, and long-term care
insurance expenditures , are increasing in line with the rapid aging of the
population.
It is projected that the size of the social security costs will increase rapidly
because of the aging population. In particular, the benefits of health and long-term
care will face higher growth than the projected GDP growth, toward 2025 when all
of the first baby boomers will be 75 years old and over. Therefore, by the beginning
of the 2020s (i.e., when part of the first baby boomers starts to be 75 years old and
over.), we need to establish a well-balanced social security system, which strikes
the balance between contributions and benefits.
The current social security benefits are mainly for the elderly, and it is not sound
financial management by the government to introduce deficit government bonds to
mobilize the financial resources needed for these costs. The costs of one year’s
social security benefits for the present living generation will be paid for by their
children’s and grandchildren’s generation in the form of deficit government bonds
that must be repaid over the course of decades. The introduction of “national
revenue” causes a discrepancy in the benefits and burdens received and borne by
the current generation and by their children and grandchildren’s generations. Future
generations such as children and grandchildren will continue paying debt treasury
bonds over decades due to social security benefits of the current elderly generation.
To provide a stable and efficient social security system that will be sustainable in
the future, Japan must eliminate intergenerational inequality and secure a balance
between social security benefits and contributions.
In The Comprehensive Reform, it was determined that tax revenues from the
hike in consumption tax rate would be allocated to financial resources for social
security. Most of the tax revenue from the tax increase is to be allocated to that part
of national revenue used to supplement social security benefits. In fact, The
Comprehensive Reform aims to restore to a robust position the unhealthy social
security finances that have been reliant on deficit government bonds by covering the
gap with tax revenues. This will improve the sustainability of social security
finances and normalize the relationship between benefits and burdens.
3 Japan’s Difficult Economic and Financial Conditions … 11

There are various indicators of the state of Japan’s finances, but primary balance
is the best orthodox indicator. Today, revenues and expenditure in Japan’s finances
can be shown as follows.

Revenues ¼ public bonds revenue þ tax revenue; etc: ð1Þ

Expenditures ¼ public bonds expenditure þ general expenditure; etc: ð2Þ

Figure 5 is a conceptual representation showing revenue and expenditure in

Japan’s finances assuming the country’s general account budget. Here, revenue
from public bonds is obtained from the issuance of new public bonds.5 In “tax
revenue, etc.,” “etc.” refers to non-tax revenue, such as from stamps and the sale of
assets. Public bond expenditure is comprised of expenditure to redeem the public
bonds and their interest payments. General expenditure indicates policy expendi-
ture, such as for social security, public works, education, and defense, and the “etc.”
in “general expenditure, etc.” indicates tax subsidies allocated to local governments.
To simplify, tax revenues, etc., are a “burden” on the current generation, and
“benefits” from public services provided to the current generation are general
expenditure, etc.6 Within tax revenues, etc., most of the revenue is a financial
resource for welfare purposes, apart from the part that is a financial resource for tax
subsidies allocated to local governments. Therefore, it constitutes a part of the
financial resources for expenditure relating to social security.
Based on the above definition, the primary balance is shown as follows.

Primary balance ¼ tax revenue; etc: ðburdenÞ

 general expenditure; etc: ðbenefitsÞ ð3Þ

Primary balance can be either a surplus or a deficit. In the case of a primary

balance surplus, the current generation’s “burden” exceeds its “benefits.”
Conversely, in the case of a primary balance deficit, “benefits” surpass “burden.”
Figure 5 shows a primary balance deficit. If using the relation that revenue=ex-
penditure, the following relations are established.

Primary balance surplus , public bonds revenue\public bonds

expenditureð¼expenditure to redeem public bonds
þ interest paymentsÞ
ð4Þ

5
As refunding bonds are issued from special accounting of the Government Debt Consolidation
Fund, they are abstracted here.
6
Strictly speaking, since public expenditure is expected to benefit future generations, such as from
pubic work projects, it is included in general expenditure. Therefore, while it cannot be said that
general expenditure is completely for the benefit of the current generation, here, for the sake of
brevity, the discussion is simplified.
12 1 Prologue: Outlook and Challenges …

【Revenues】 【Expenditure】

Public bonds-related
Citizens
Revenue from public bonds expenditure

Primary balance deficit

Benefits

Tax revenue, etc. General expenditure, etc.

Burden

Citizens National revenue

Of which, revenue from Of which, social security-
for social security
consumption tax related expenditure
benefits

Fig. 5 General Account Expenditures and Tax Revenues

Primary balance deficit , public bonds revenue\public bonds

expenditureð¼expenditure to redeem public bonds þ interest paymentsÞ
ð5Þ

Public bonds expenditure includes expenditure to redeem public bonds and

interest payments. In the case of a primary balance surplus, if public bonds rev-
enue = expenditure to redeem public bonds, the government public bonds balance
will be constant over time. Unfortunately, Japan’s finances are constantly in a state
of primary balance deficit. Normally, a relation of public bonds revenue ˃ ex-
penditure to redeem public bonds is established, and the government’s public bonds
balance increases.
For the primary balance, it is necessary to think not only nationally, but also
locally. There is the concept of the “national and local long-term debt balance” as
the government’s debt redemption expenses and the tax financial resources cover
interest payments. According to the Ministry of Finance, the national and local
long-term debt balance at the end of fiscal 1998 was 553 trillion yen, but had risen
to 692 trillion yen by the end of fiscal 2003 and 770 trillion yen by the end of fiscal
2008, and finally surpassed 1000 trillion yen at the end of fiscal 2014. When
primary balance is achieved, bonds outstanding increaseby the amount equivalent
to interest payment.This is because new bond issues can only be allotted to debt
redemption andinterest payment. In this case, if, for example, the nominal GDP
growth rate equals the nominal interest rate, bonds outstanding increase at the same
rate as the nominal GDP. As a result, the bonds outstanding to nominal GDP ratio
remains stable.
To control the cumulative increase in the long-term debt balance, it is vital to
reduce the primary balance deficit and change it to a surplus.
The ratio of the national and local primary balance to nominal GDP has been in
deficit since the 2000s. As the primary balance is in deficit, the long-term debt
3 Japan’s Difficult Economic and Financial Conditions … 13

balance is accumulating. To curb the accumulation of long-term debt balance, it is

essential to convert primary balance from a state of deficit to achieve a surplus.
The Japanese government is aiming to achieve a national and local primary
balance surplus by fiscal 2020. The government has set up the following fiscal
consolidation targets: 1. To halve the primary deficit of the central and local
governments to GDP ratio by fiscal 2015 from the ratio in fiscal 2010, 2. To achieve
a primary surplus by fiscal 2020, and 3. Thereafter, seeking to steadily reduce the
public debt to GDP ratio.
In Fig. 6, we conducted projections under two different macroeconomic sce-
narios. First, “economic revitalization cases.” The following economic and fiscal
policies are assumed to have sound effects: aggressive monetary policy, flexible
fiscal policy, and a growth strategy that promotes private investment. In the medium
to long term, the average annual growth rate is projected to reach more than 2% in
real terms and more than 3% in nominal terms. The rate of change in the consumer
price index (excluding the direct effects of the increase in the consumption tax rate)
is projected to be stable, at around 2%, in the medium to long term. Second,
“baseline cases.” The domestic economy is assumed to grow approximately at the
rate of current potential growth. In this case, in the medium to long term, the
average annual growth rate is projected to be less than 1% in real terms and mid 1%
in nominal terms.
The primary deficit of central and local governments is projected to meet the
fiscal target of halving the ratio of deficit to GDP from the fiscal 2010 rate by fiscal
2015 (about 3.3% of GDP). In the “economic revitalization cases”, the primary
deficit is projected to remain about 9 trillion yen (1.7% of GDP) in fiscal 2018, the
year to review the progress of reform measures during the Intensive Reform Period

Fig. 6 Trends in the ratio of national and local primary balance to nominal GDP Source Based on
“Provisional calculation of medium-to long-term economic finances,” by the Cabinet Office, Japan
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TOBACCO AMONG NORTH AMERICAN INDIANS ***
 USE OF TOBACCO
AMONG
NORTH AMERICAN INDIANS
BY
RALPH LINTON
Assistant Curator of North American Ethnology

Anthropology
Leaflet 15
FIELD MUSEUM OF NATURAL HISTORY
CHICAGO
1924
 PLATE I.

PAWNEE PRIESTS MAKING A SMOKE OFFERING.

 Field Museum of Natural History
DEPARTMENT OF ANTHROPOLOGY
Chicago, 1924
Leaflet Number 15

Use of Tobacco among North

American Indians
Tobacco has been one of the most important gifts from the New
World to the Old. In spite of the attempts of various authors to prove
its Old World origin there can be no doubt that it was introduced into
both Europe and Africa from America. Most species of Nicotiana are
native to the New World, and there are only a few species which are
undoubtedly extra-American. The custom of smoking is also
characteristic of America. It was thoroughly established throughout
eastern North and South America at the time of the discovery; and
the early explorers, from Columbus on, speak of it as a strange and
novel practice which they often find it hard to describe. It played an
important part in many religious ceremonies, and the beliefs and
observances connected with it are in themselves proof of its
antiquity. Hundreds of pipes have been found in the pre-Columbian
mounds and village sites of the eastern United States and, although
these remains cannot be dated, some of them must be of
considerable age. In the southwestern United States the Basket
Makers, an ancient people whose remains are found below those of
the prehistoric Cliff Dwellers, were smoking pipes at a time which
could not have been much later than the beginning of our era.
At the time of the discovery of America, tobacco was in use over
the greater part of the continent. It was not used in the sub-Arctic
regions of North America or in the extreme southern part of Southern
America. On the west coast of South America and in the Andean
highlands it was replaced by another narcotic, coca (Erythroxylum
coca), from which the modern drug cocaine is extracted. The coca
leaves were dried and chewed with powdered lime. Tobacco was
smoked throughout most of its range, but the tribes of the northwest
coast of North America mixed it with shell lime and made it into small
pellets which were allowed to dissolve in the mouth. The tribes of
Washington, Oregon and a great part of California used it in the
same way, but also smoked it. Along the eastern side of the Andean
highlands in South America tobacco was both smoked and chewed.
The chewing tobacco was prepared like the Andean coca, and the
idea was probably borrowed from coca chewing.
Although Europeans learned the custom of smoking from the
Indians and even copied the Indian smoking appliances rather
closely, the modern American custom of tobacco chewing may not
be of Indian origin. None of the North American Indians east of the
Rocky Mountains chewed tobacco, and the only point at which South
American tobacco chewing reached the Atlantic Coast was a small
region in northern Colombia. Modern chewing tobacco lacks the
admixture of powdered lime, which was considered necessary by all
Indian tobacco chewers and seems to have been an invention of the
white frontiersmen. It is possible, however, that the idea of tobacco
chewing was carried to the English colonies by the Spaniards, who
may have learned it from the South American Indians.
The North American Indians used at least nine species of
Nicotiana, most of which were cultivated. Nicotiana tabacum, the
species to which practically all the modern commercial tobaccos
belong, was grown throughout Mexico, the West Indies, and in
northern and eastern South America. It was unknown north of
Mexico until its introduction into Virginia by the English colonists.
Nicotiana rustica, a much hardier species with a yellow flower, was
grown by the Indians of the eastern United States and Canada as far
west as the great plains and as far north as agriculture was possible.
It was the first tobacco grown in Virginia for the European trade, but
was soon supplanted there by N. tabacum. Small patches of it are
still cultivated by some of the Central Algonquian tribes who use it in
their ceremonies. N. attenuata was used over a larger area than any
other species. It is found in its natural state in the southwestern
United States and southern plains, and as a cultivated plant extends
northward into western Canada and British Columbia. It was also
cultivated on the lower Colorado, but the typical Pueblo tribes do not
seem to have raised it. N. multivalvis was grown in Washington and
Oregon, as well as by the Crow, who lived on the western edge of
the plains. A related species (N. quadrivalvis) was grown by the
settled tribes along the Missouri river. Still another species (N.
biglovii) was used by the California tribes, and is known to have
been cultivated by the Hupa. The three last-named species are
rather closely related; it seems probable that N. multivalvis and N.
quadrivalvis were brought into the plains area from the west,
displacing N. attenuata.
 PLATE II.

AMERICAN INDIAN TOBACCO PIPES.

1. BOWL OF BASKETMAKER PIPE. 2. BOWLS OF
SOUTHWESTERN TUBULAR PIPES. 3. SOUTHWESTERN TUBULAR
PIPE, SANDSTONE. 4. CALIFORNIA CLAY PIPE. 5. CALIFORNIA
STEATITE PIPE. 6. PIPE WITH STEATITE BOWL AND WOODEN
STEM, AND PIPE CASE, CALIFORNIA.

There is very little information available on the aboriginal methods

of tobacco culture in the eastern United States. Early writers say that
it was not grown with other crops, as it was believed to be injurious
to them, and was usually cultivated by men. Mr. Milford Chandler
informs me that the Cayuga, in New York State, had permanent
tobacco beds in which the plant was grown year after year. These
beds were lightly manured from time to time, but were not cultivated,
and the plants were left to propagate themselves. The leaves were
gathered, but the stems, with the seed pods, were left standing in the
patch. The Seneca, another tribe of the Iroquois confederacy, simply
scattered the seeds on the ground and had a religious prohibition
against cultivating the plant. Mr. Alanson Skinner informs me that the
Kickapoo and Potawatomi made large brush piles fifty or more feet
long and ten or twelve feet wide which they fired about the middle of
June. When the ashes were cold, the ground was hoed up, mixed
with the ashes, and planted with tobacco and pumpkins. The
tobacco gardens were made in the woods, remote from the villages,
and were surrounded by brush fences. The Sauk also planted their
tobacco in the ashes of brush-fires, but did not break the ground or
cultivate the crop. In some cases they simply threw a handful of
seeds on the ground near the lodge. The Kickapoo, Potawatomi and
Sauk all gathered the leaves of the plant in late August. They spread
them on hides or blankets, and when they had wilted, rolled them
like tea-leaves. When dry, the leaves were crushed. The reason
assigned for the rolling was that leaves treated in this way did not
crush to fine powder like those that had been dried flat. Most of the
eastern tribes grew only enough tobacco for their own needs, but
one, the Tionontati, raised large quantities of it for export and, on this
account, were called Tobacco People (Nation de Petun) by the
French.
The best published account of aboriginal tobacco-culture is that
given to G. L. Wilson by Buffalobird-woman, an old member of the
Hidatsa tribe. The Hidatsa raised a different species of tobacco from
the eastern Indians (N. quadrivalvis), and their methods were
somewhat different. She says, “The old men of the tribe who smoked
each had a tobacco garden planted not very far away from our corn-
fields, but never in the same plot with one. Tobacco gardens were
planted apart, because the tobacco plants have a strong smell which
affects the corn; if tobacco is planted near the corn, the growing
corn-stalks turn yellow, and the corn is not so good. Tobacco seed
was planted at the same time sunflower seed was planted (as early
in April as the soil could be worked). The owner took a hoe and
made soft every foot of the tobacco garden; and with a rake he made
the loosened soil level and smooth. He marked the ground with a
stick into rows about eighteen inches apart, and sowed the seed
very thickly in the row. He covered the newly sowed soil very lightly
with earth which he raked with his hand. When rain came and
warmth, the seed sprouted. The plants came up thickly so that they
had to be thinned out. The owner of the garden would weed out the
weak plants, leaving only the stronger standing. The earth about
each plant was hilled up with a buffalo rib into a little hill like a corn
hill. A very old man, I remember, used a big buffalo rib, sharpened
on the edge, to work the soil and cultivate his tobacco. He caught the
rib by both ends with the edge downward; and stooping over, he
scraped the soil toward him, now and then raising the rib up and
loosening the earth with the point at one end. He knelt as he worked.
“Tobacco plants began to blossom about the middle of June; and
picking then began. Tobacco was gathered in two harvests. The first
harvest was these blossoms, which we reckoned the best part of the
plant for smoking. Blossoms were picked regularly every fourth day.
If we neglected to pick them until the fifth day, the blossoms would
begin to seed. Only the green part of the blossom was kept. When
we fetched the blossoms home to the lodge, my father would spread
a dry hide on the floor in front of his sacred objects and spread the
blossoms on the hide to dry. The smoke hole of the lodge, being
rather large, would let through quite a strong sunbeam, and the
drying blossoms were kept directly in the beam.
“When the blossoms had quite dried, my father fetched them over
near the fireplace and took a piece of buffalo fat, thrust it on the end
of a stick and roasted it slowly over the coals. He touched it lightly
here and there to the piled up blossoms, so as to oil them slightly,
but not too much. Now and then he would gently stir the pile of
blossoms with a little stick, so that the whole mass might be oiled
equally. When my father wanted to smoke these dried blossoms, he
chopped them fine with a knife, a pipeful at a time. The blossoms
were always dried in the lodge: If dried without, the sun and air took
away their strength.
“About harvest time, just before frost came, the rest of the plants
were gathered. He dried the plants in the lodge. For this he took
sticks, about fifteen inches long, and thrust them over the beam
between two of the exterior supporting posts, so that the sticks
pointed a little upwards. On each of these sticks he hung two or
three tobacco plants by thrusting the plants, root up, upon the stick,
but without tying them. When the tobacco plants were quite dry, the
leaves readily fell off. It was the stems that furnished most of the
smoking. They were treated like the blossoms, with buffalo fat. We
did not treat tobacco with buffalo fat except as needed for use, and
to be put into the tobacco pouch ready for smoking.
“Before putting the tobacco away in the cache pit, my father was
careful to put aside seed for the next year’s planting. He gathered
the black seeds into a small bundle about as big as a baby’s fist,
wrapping them in a piece of soft skin which he tied with a string. He
made two or three of these bundles and tied them to the top of his
bed, or to a post nearby, where there was no danger of their being
disturbed.”
 PLATE III.

AMERICAN INDIAN TOBACCO PIPES.

1. PIPE OF ANTELOPE BONE, CHEYENNE. 2–3. STEATITE PIPES,
JOHNSON COUNTY, ILLINOIS. 4–5. LARGE STEATITE PIPES,
SOUTHEASTERN UNITED STATES.

The Blackfoot and Crow, nomadic tribes of the western Plains who
raised no food crops, cultivated small patches of tobacco for
ceremonial use. The ground was cleared of weeds and grass, and
the seed planted in holes about two inches deep, made with a
pointed stick. The gardens were weeded from time to time, but do
not seem to have been regularly cultivated. In both tribes tobacco
culture was attended by elaborate ceremonies. Among the Crow it
was in the hands of a society which also played an important part in
the social life of the tribe. The right to plant tobacco was considered
a special privilege which could be obtained only through a revelation
from some supernatural being or through adoption by a person who
had received such a revelation. The adopted person could, in turn,
adopt others. Any person might receive such a revelation, and the
society was composed of a number of divisions or chapters which
derived their right to plant from different revelations and differed in
their songs and in details of their ceremonies. Within the chapter
there were certain rights, such as that of mixing seed before
planting, which could only be acquired by purchase. Both men and
women were eligible to membership, and the society held
assemblages for dancing throughout the year.
Some of the tribes west of the Rocky Mountains also cultivated
tobacco, although there is little information on their methods. On the
Columbia River and in northern California a stump or fallen log was
burned, and the tobacco seed scattered in the ashes.
Most of the North American Indians mixed their tobacco with other
herbs before smoking it. Among the more northern tribes, especially
those who did not raise tobacco themselves, this was done partly
through motives of economy, but the mixture was also designed to
improve the flavor, as in our own commercial blends. The favorite
smoke of the tribes of the eastern United States and Canada was
called kinnikinnick, from an Algonquian word meaning “that which is
mixed.” Each tribe had its own formula for this mixture, but it usually
consisted of tobacco, sumac leaves, and the inner bark of a species
of dogwood. The bark and leaves of a number of other plants were
sometimes added or substituted. A little oil was usually added to the
mixture to bind the dust, which would otherwise irritate the smoker’s
throat and clog the pipe. Kinnikinnick was milder than pure tobacco,
and was preferred by most Indians and by many white hunters and
settlers. The Pueblo Indians of the Southwest smoked various
mixtures of tobacco and herbs in their religious ceremonies. The
greatest care was used in compounding these ceremonial mixtures,
and the plants were valued largely according to the distance from
which they came. The California Indians diluted their tobacco with
manzanita leaves or mixed it with Jamestown weed, itself a powerful
narcotic. The choicest smoking mixture of the ancient Mexicans was
made from tobacco and the gum of the liquidambar tree.
Three main methods of smoking were used by the American
aborigines. The natives of northern and central South America and
the West Indies were cigar smokers. The Central Americans and
Mexicans were predominantly cigarette smokers, although some of
the ancient Mexicans also used pipes. The North American Indians,
with the exception of the Pueblo tribes of the Southwest, were
exclusively pipe-smokers. The distribution of these three methods in
America has strongly influenced European smoking customs. The
Mediterranean nations, who learned the use of tobacco from cigar
and cigarette using Indians, still prefer to smoke it in these forms.
The English, who came in contact with the pipe-smoking Indians of
the eastern United States are still predominantly pipe-smokers. The
custom of cigarette-smoking did not become general in northern
Europe and the United States until quite recent times, and the
vigorous opposition which it has met here seems to be due quite as
much to its novelty as to any proved injurious effects.
Aboriginal cigars were practically identical with those now in use
and were smoked in the same way.
The aboriginal cigarette was made with a corn-husk wrapper and
contained much less tobacco than the modern commercial variety. It
is still in use throughout most of Mexico and Central America and
among the Pueblo Indians of the southwestern United States.
Archæological finds prove that the southwestern tribes smoked pipes
or reed cigarettes in ancient times, and the corn-husk cigarette may
have been introduced from Mexico during the early historic period. In
recent times the spread of the Peyote cult, which originated in the
southwestern Plains, has carried the corn-husk cigarette to many
northern tribes who were unfamiliar with it even a generation ago.
The Mexicans and Pueblo Indians also smoked reed cigarettes in
ancient times, and the Hopi form may be taken as typical. It
consisted of a small reed, not over two and a half inches long,
packed with powdered tobacco. A band of some fabric was usually
bound around the reed, leaving a flap hanging down by which it was
held. Hundreds of the charred butts of such cigarettes have been
found in the prehistoric ruins of the Southwest, but they are lacking
in the lower archæological levels, and the earliest inhabitants of the
region were probably pipe and not cigarette smokers.
The Dakota say that they did not use pipes in ancient times, but
smoked their tobacco in a hole in the ground. A similar method was
used by the Cree as a makeshift. Hind says, “I asked the Indian what
he would do for a smoke until he had finished the new pipe. He
arose and walking to the edge of the swamp cut four reeds, and
joined some pieces together. After he had made a hole through the
joints, he gently pushed one extremity in a slanting direction into the
earth, which he had previously made firm by pressure with his foot.
He then cut out a small hole in the clay, above the extremity of the
reed, and molding it with his fingers, laughingly said: ‘Now give me
tobacco, and I will show you how to smoke it.’ He then filled the hole
with a mixture of tobacco and bearberry, placed a live coal on the
top, and stretching himself at full length on the ground, with his chin
supported by both hands, he took the reed between his lips and
enjoyed a long smoke.”
Indian pipes were of two main types,—straight pipes, in which the
tobacco cavity and stem were in the same plane, as in a modern
cigar holder, and elbow pipes, in which the bowl was inclined
upward. The straight pipe was known throughout practically the
whole of America north of Mexico, but was rare in the eastern United
States. It was used to the practical exclusion of all other forms in the
southwestern United States and on the Pacific coast. The
elaborately decorated smoking tubes of the Mexicans, mentioned by
early Spanish writers, may have been straight pipes, but many of
them were probably cane cigarettes. The elbow pipe was the
dominant form in the eastern United States and Great Plains, and
also in eastern and southern South America. It was used to a limited
extent by the prehistoric Mexicans and in southern California, and
was not unknown in the Southwest. In historic times it has come into
use in British Columbia and Alaska, regions in which tobacco was
not originally smoked.
The earliest pipes which can be even approximately dated are
those of the Basket Makers, a people who lived in the southwestern
United States in ancient times. Their remains are found below those
of the Cliff Dwellers, and evidence along several lines indicates that
they were living in the region by the beginning of the Christian era
and had been absorbed or driven out by a.d. 1000. A number of their
pipes have been found. They are of the straight type and are usually
quite small, short, and heavy, with separate stems about two inches
long (Pl. II, No. 1). The bowls are made of stone, unbaked clay, or,
rarely, wood; and the stems of wood or bird-bone. The stems are
attached with pitch. Many of these pipes are heavily caked, and they
were probably used for personal as well as ceremonial smoking. It is
impossible to tell whether the Basket Makers used tobacco in these
pipes and analyses of the cake have yielded only negative results. If
they did use tobacco, it was probably the wild native species
(Nicotiana attenuata).
The Cliff Dwellers and ancient Pueblo tribes who succeeded the
Basket Makers used straight pipes of a somewhat different type.
They were usually longer and more slender than the Basket Maker
pipes with somewhat thinner walls. The smaller examples, which
were probably intended for personal use, seem to have had separate
stems (Plate II, No. 2). Large tubular pipes, shaped like half a cigar,
are also found, but were probably used only in ceremonial smoking.
They are made of clay or soft stone and often show beautiful
workmanship (Pl. II, No. 3). Roughly made clay pipes of this sort,
popularly known as “cloud blowers,” are still used by the Hopi in their
ceremonies.
The California Indians, with the exception of the Diegueño, also
used the straight pipe, and the form is probably as ancient there as
in the Southwest. There were various tribal and regional differences
in the shape and material. Wooden pipes without separate stems
were of nearly universal occurrence, and were probably the earliest
form. In some regions they were carved and inlaid with abalone
shell. Pipes of unbaked clay with wooden stems were used in a few
localities (Pl. II, No. 4), but the finest California pipes were made of
steatite or soapstone (Pl. II, No. 5). They were usually provided with
short mouthpieces of wood or bone. The Hupa of northern California
used a pipe with a small steatite bowl accurately fitted into a cavity in
the end of a long tapering wooden stem (Pl. II, No. 6).
Several of the tribes of the Great Plains used straight pipes in
ancient times. These pipes were made from the leg bone of an
antelope wrapped with sinew at the bowl end (Pl. III, No. 1). In some
cases the whole pipe was covered with rawhide or membrane. The
Arapaho say that they used this form exclusively in early times, and
the sacred pipe of the tribe is straight with a black stone bowl and a
long tubular wooden stem. A pipe of the same form, but with a red
stone bowl, was used by the Cheyenne in their Sun Dance, and the
Crow have made straight stone pipe bowls until quite recent times
(Pl. V, No. 3).
A number of straight pipes of stone and clay have been found in
the eastern United States, but there seems to be no record of their
use by the historic tribes. The examples shown (Pl. III, Nos. 2–3) are
from Johnson County, Illinois. They are made from close-grained
greenish brown steatite, a material soft enough to be easily worked
with flint tools, but capable of taking a fine polish. The large size and
excellent finish of these pipes indicates that they were intended for
ceremonial rather than personal use. The bird pipe is eight and a
quarter inches long, with an internal bowl diameter of one and a
quarter inches, and is an unusually good example of aboriginal
sculpture. The eye sockets are roughly finished, and were probably
inlaid with some other material.
Straight pipes are easier to make than elbow pipes, but have
certain disadvantages. They have to be directed upward in smoking
to keep the tobacco from falling out of the bowl, and the tobacco dust
and juices are drawn down into the stem with results familiar to all
smokers. To prevent this, many tribes are said to have put a pebble
or pellet of clay in the bottom of the bowl before filling it. Even a
slight angle between the bowl and stem is a great convenience to
the smoker, and this improvement once hit upon, perhaps through
faulty workmanship, the development of the elbow pipe was easy.