[Tax Story] Proposing the Introduction of a 'Social Security Tax' as a Solution to Generational Conflict

Professor Ahn Chang-nam, Department of Taxation, Gangnam University

In Unjoru (雲鳥樓), a traditional hanok in Gurye, Jeollanam-do, located in the Seomjin River basin, there is a wooden rice container inscribed with the phrase "Tanin Neunghae (他人能解 · anyone can open)." It is said that when poor neighbors struggled to make ends meet, they could take rice stored here to cook and eat, thus helping to save starving people. This old house was built in 1776 (the 51st year of King Yeongjo of the Joseon Dynasty) and has survived to this day, even during times when groups with strong class struggle characteristics, such as the Hwalbindang or partisans, were active in the foothills of Jirisan, as they protected Unjoru. The owner of this house added praise that they were not the kind of "barbarians" we despise.

When you treat others kindly, receiving unexpected grace from others is, without necessarily invoking religion, a "hidden" law of life created by the Creator.

Now, our country is realizing a welfare state through the National Pension and Health Insurance. However, there remains a serious intergenerational conflict that has not yet been fully addressed.

The National Pension is designed so that beneficiaries receive more than the amount paid by contributors. In other words, the elderly receive pension payments in advance that the younger generation will pay later. However, the National Pension is projected to run a deficit in 2042 and its reserve fund is expected to be depleted by 2057 (National Pension Financial Projection Committee 2018). With the current low birthrate and rapid aging, the younger generation will find it difficult to expect support from the next generation. What should be done?

Health Insurance adjusts contribution rates annually considering the balance of income and expenditure to maintain finances, but as the elderly population receiving hospital treatment increases due to aging, the burden of health insurance premiums on the younger generation rises. Health Insurance is also expected to run a deficit in 2024 (National Assembly Budget Office 2019). There may be complaints that the elderly benefit from the premiums paid by the younger generation.

Urgent measures are needed to resolve the deficits of the National Pension and Health Insurance. The United States addresses this issue through the Social Security Tax, France through the Contribution Sociale Generalisee, and Japan raised its consumption tax rate from 5% to 10% in 2012, using all increased tax revenue for social security expenses.

Our country also needs to cover the deficits of the National Pension and Health Insurance by introducing a social security tax (tentative name). Choosing the distant disaster over the immediate sacrifice to be borne, even when faced with the social tumor of fiscal deficit, is not a stance a rational person should take. If one only clings to the instinct of ownership, the distinction between humans and beasts becomes difficult.

There should be an intersection of agreement between young people who have income but no home and elderly people who have a home but low income. Based on this, a social security tax can be designed. The "Tanin Neunghae" of Unjoru, which chose sharing over possession, is a good example.

We now live in the most prosperous era since humans inhabited the Korean Peninsula. However, if we fail to heal the conflicts between rich and poor caused by deepening wealth polarization and the intergenerational conflicts over welfare state costs in advance, the future of the Korean Peninsula looks bleak. The state must create a fair and robust system, and members of society must trust it, work hard, and enjoy the rewards with pride in the future. This is a welfare fair society. We can only move forward; we cannot regress. I propose the introduction of a social security tax to cover welfare fiscal deficits.

Changnam Ahn, Professor of Taxation, Kangnam University