Social security fees to tax why not suitable for our country

China is currently practicing a social security system that combines a unified accounting system, which was originally established to combine fairness and efficiency. For this reason, from the beginning to the end of China's social security individual and unit contributions are taken in the form of "fees", which is fully in line with the attributes of this system of united accounts. Fees to taxes will produce many conflicts with the current institutional model, resulting in conflict with socio-economic conditions.

Fees to taxes lack "elasticity"

Fees to taxes do not meet the "elasticity" requirements of the social security system. The rigidity of the tax system is greater than the rigidity of the fee system, which is one of the bases for the tax school to advocate the change of fee to tax, which is considered to strengthen the strength of the collection. However, we should take into account another factor: our social security system is still under construction, the united accounts combined system framework has just been set up, the relationship between the integrated part and the account part has not been rationalized, the scale of the proportion is still changing, only to do the scale of the individual account in the country in Liaoning, 8%, Jilin and Heilongjiang 5% and 6%, this year, Tianjin and other provinces and municipalities, such as 3% and other types of different types. In addition, the civil service and institutional reform program is far from being finalized; rural migrant workers, landless peasants, purely agricultural farmers of the social security system is still in the exploratory stage, the system is far from clear expectations, there is no long-term strategic thinking and conceptual design, is completely step by step, a government of one kind. In this way, it is necessary to leave a larger space for the reform of the system as appropriate, and retaining the contributory system is tantamount to retaining the space for any uncertainty of future reform. If once the fee to tax, this system is rigid, for future reform adds another problem.

The problem of investment returns

The current investment rules for social security funds only allow for bank deposits and the purchase of treasury bonds, with a low rate of return of only about 3% on average across the country, which is only just enough to offset the inflation rate, and much lower than the average wage growth rate in society. Such a rate of return is a serious challenge to the financial sustainability of the current social security system, a great irony to the realization of individual accounts, and the legitimacy of the existence of the united accounts system is one of the biggest threats.

Fee to tax will undoubtedly make the social security fund investment more into an awkward situation: the interest rate return of the burden can only be borne by the state, and can only be considered and resolved from the financial point of view, then the account funds how to do? Theoretically speaking, the state can not allow the tax into the capital market for market-oriented investment. From the immediate point of view, it is obviously unscientific and even a waste of resources for the account funds to adopt the same investment channel as that of the co-ordinated funds; from the long-term point of view, the purpose of setting up individual accounts is to improve their rate of return, so that they can be invested in a trust-based market-oriented system like enterprise annuities; otherwise, won't it become a unification of accounts to implement the same investment system on the accounts of the realizers over a long period of time? Therefore, the fee to tax is tantamount to making a cocoon, for the account funds in the future market-oriented investment system set up a theoretical obstacle.

Fee to tax beyond the current level of socio-economic development

Fee to tax will involve a lot of related issues need to be resolved, in front of the eyes of the two biggest difficulties: how to define the connotation of taxpayers and extension, that is, how to define the scope of taxpayers and the concept of taxpayers; the other is the setting of the tax rate, that is, how to set the tax rate? These two major difficulties in the current level of socio-economic development after the fee to tax is difficult to solve.

To increase a tax or a tax item, the first thing to do is to determine its taxpayers. If the fee to tax, the current urban formal sector is basically covered in can become social security taxpayers, but the informal sector, a large number of flexible employment is far from being covered in; rural migrant workers participation rate of only 7%, the annual income of only 9,000 yuan; in 2006, the net income of the rural population is only 3,587 yuan, and even the agricultural tax are exempted, can not add to the tax burden of the farmers? Once the fees are changed to taxes, these social groups are excluded from the taxpayers, which is obviously contrary to building a harmonious society, and this is a foolhardy way to take the seriousness of tax legislation.

In addition, how will the tax rate be determined? If different tax rates are set for the different groups mentioned above, plus a separate tax rate for nearly 40 million more civil servants and institutions, this will undoubtedly be the single most fragmented social security system in the world, which is not only typical of social exclusion, pushing current problems into the future, but also of the social security system's complexity and fragmentation will surely have a serious impact on the formation of the nationwide big market and the mobility of the labor force.

The dilemma of fund security

The security of China's social security fund does not lie in whether it is a "fee" or a "tax", or whether there is a trinity of levy and management system, or whether there is any left-handed supervision of the right-handedness, but rather in the existence of two main dilemmas: first, the investment of the fund is limited to the right-handedness of the left-handedness. The main dilemma: First, the investment of funds is limited to agreement deposits and treasury bonds, low return on investment, resulting in the secret, irregularities, in many places, this is an open secret; second, the level of coordination is too low, the management of funds is scattered, the central whip can not be reached, the management of social security funds show serious fragmentation phenomenon.

Currently China's social security system is mainly county and municipal level of coordination, the real big income and expenditure in the sense of provincial level of coordination is still very little, even including the so-called provincial level of coordination of the three northeastern provinces have not realized the real big income and expenditure. As early as 1991, the State Council issued Document No. 33, "Decision on the Reform of the Pension Insurance System for Enterprise Employees," in which it was proposed that "conditions should be actively created for the gradual transition from the current municipal and county systems to provincial-level systems," and 16 years have passed, and the level of integration has remained virtually unchanged. In these 16 years, any social security document issued by the central government and departments must mention "gradually realizing provincial-level co-ordination", and it is estimated that this has been done more than a dozen times, but why has it not been realized? Is it because there was no tax reform 16 years ago? The answer is of course no: even if the tax change is implemented today, it is simply not possible to do a nationwide large income and expenditure.

There is only one key factor in determining whether provincial co-ordination can be realized: whether the system design meets the requirements of the current level of economic development. As long as there is social coordination in the system design, the dualized economy will inevitably lead to insufficient incentives to contribute, generate moral hazard, which in turn will lead to adverse selection, and ultimately make it difficult to raise the level of coordination. As in the case of small-team accounting in the era of the people's commune, if the brigade or the commune is used as the unit of accounting, adverse selection would have destroyed the people's commune system long ago. In a dual economy, no matter whether a contribution system or a tax system is implemented, as long as the contributions are not 100% transferred to individual accounts, it will be difficult to raise the level of coordination, and moral hazard will certainly exist widely in the county, city and provincial governments, and in every group of people.

(The author is the director of the Institute of Latin American Studies at the Chinese Academy of Social Sciences, and a doctoral supervisor, whose main research areas include: Western economics, market failure, welfare state, comparison of social security systems, social security fund investment and enterprise annuity, etc.)