I used to think government ought to provide as much as infrastructure and assistance to its citizens. Such things like smooth paved roads, free highways, comprehensive health coverage, caring unemployment insurance, generous child benefit, free primary and secondary education, cheap – or free – university education, work training, generous pension, and so on. I thought this was to be expected from government; after all, government is supposed to be staffed by well-intentioned, intelligent people, right? Moreover, government is a representation of its citizens and as such is supposed to deliver what each citizen cannot individually get. Government in short should create a welfare state to ensure the welfare of its people.
This grand idea is nice and noble. I believed in it when I was a university student. One perspective I didn't have then was the perspective of a taxpayer. A welfare state requires a lot of money and it comes from taxpayers. It was easy for me to demand all the infrastructure and assistance from a government when I didn't have to pay it.
When I got a job, I found out quickly enough that a big chunk taken from my paycheque was tax. Something like 30%! My initial reaction was 'Well, it was time for me to participate in building our economy and welfare'. It went on for several years, and I learned that along with paycheque expenses also went up. Things like mortgage, car payment, clothing, entertainment, vacation, eating out, cell phone bills, and the rest. These expenses got me thinking: 'Wait a minute, am I not already participating in building our economy and welfare by making these expenses?' I started feeling the squeeze of a middle-class lifestyle where paycheque begets expense and things go around in a circle. Around and around ... you know what I mean.
Why then do I still have to pay a lot of income tax? Shouldn't it be more fair if my expenses were taxed instead of taking a big chunk directly from my paycheque? The pendulum swung to the other end as I thought about my situation. I started to wonder why there was no tax credit for healthy citizens who did not get sick for a year; wouldn't it motivate people to exercise and eat right? I started to wonder why the bank's interest rate were not high enough so that people were motivated to save? Government takes money, but seldom returns it. Apparently, government doesn't apply economics as the art and science of incentives to motivate its citizens.
This is when I started realizing that government may not be staffed by people who really understand that money does not grow from the trees. Moreover, political parties that vie for the position of government can promise all kinds of things during election campaigns. But who are going to pay for all these? You guessed it, taxpayers.
So now I have both perspectives: as a non taxpayer and as a taxpayer. On balance, I believe a welfare state will not create innovative, risk-taking yet prudent citizens.
An impoverished government will not also be able to do its main functions: underwriter and referee. I see government as an insurance company to protect its citizens against unpredictable, life-threatening forces such as traffic accidents, floods, tsunami and alikes. Even then, citizens should be able to exercise freedom to choose private insurance companies if their prices and coverages are better. As an underwriter, government should provide protection against invasion risk (defense role) and trade & manufacturing liabilities (if it wants to develop strong industry). Government should protect wealth and beauty of land and water. As a referee, government should settle disputes among its citizens and enforce any laws passed. Even then, citizens should be allowed to settle their disputes out of court if they so wish.
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