Monday, April 7, 2008

Tax, Pensions, Social Security and Security

Is it the responsibility of the government or the organization you work for to look after your needs when you retire?
In the thousands of years of human history, it is only in the last hundred and fifty years or so that our society has expected a third party (government, company etc. ) to help us ease our financial burden as we retire.

In the US the Social Security system is dysfunctional and I could write a long thesis on the subject. Basically, the system is bankrupt and is viewed more as an additional tax to the working class by a majority of the productive people in the economy. In Singapore there is no social security but there are mechanisms that are fairly successful in ensuring that people save for their retirement via the central provident fund. But this begs the question - Is it the duty of the government to ensure that people save?

From a a purely theoretical point of view it should not be the government's duty or mandate to influence private decisions of it's citizens. However one of the major responsibilities of government is to maintain social order - hopefully a just social order.

In this respect - taxes and mechanisms to save for a rainy day become important. The biggest threat to a large number of developed countries and fast developing countries is the increasingly divergent earning capabilities of people. Even in countries like the US, the middle class is in effect becoming poorer and smaller as a percentage of the population. In India and China, the earning gap for different sections of it's population is increasing at a rapid rate. So as much as most people do not like to pay taxes, the necessity for taxes and parts of the tax system that subsidizes the poorer sections of population is becoming more evident. In effect you are paying taxes to maintain you earnings capabilities by buying security. i.e. in the future taxes in many countries will increase so that the populations can be "controlled " against rebelling about the disparity in wealth. In developed countries the taxes will be used to "control " the sections of the middle class that are slipping into poverty. In countries like India and China, tax money will be used to control the large sections of the poorer classes that are not realizing the "middle class or wealthy class" dream.
So in effect are we all paying taxes to maintain status quo? - Once again feel free to comment on your thoughts!

1 comment:

Anonymous said...

Depends very much on which side of the fence one is! One should also accept the fact that majority of the people, yes even many of the top decision makers, either ‘leave it for later’ or just don’t know how to go about taking care of their needs after retiring. Yes, it is the duty of the government to ensure that people save - a shared responsibility. It is slowly being accepted by people from all walks of life. Whichever form one adopts, it should be flexible and suit the local culture and, at the same time keep the interest of the individual in mind. As you have rightly pointed out, “one of the major responsibilities of government is to maintain social order - hopefully a just social order.” The Nordic Countries are one of the best examples of just social order – as best as one can have I suppose. At some stage we have to balance the national interest to the individual interest. Governments should encourage and facilitate saving in some form or the other.