[VIEWPOINT]A brewing property tax revolt

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[VIEWPOINT]A brewing property tax revolt

Nearly 90,000 households in apartments in Ansan, Gyeonggi province, have shown signs of refusing to pay their property taxes. A similar movement has occurred in Apgujeong-dong in the Gangnam district, Seoul, and other areas too. This movement to refuse to pay taxes may be seen lightly as a phenomenon that happens temporarily in some local areas, but a lot is suggested in the act of residents’ opposing directly the government’s authority to levy taxes and demanding their adjustment. The superficial reason for the refusal is that other cities and counties gave a discount of up to 50 percent on the increase in property taxes whereas Ansan city applied the increased rates without a discount for two years. As a result, the property taxes on the apartments in Ansan are twice as high as those on the apartments in other areas whose standard prices are similar.
But if we point out that the local government which failed to adjust the tax rates was the origin of the problem after hearing only the argument of the residents, this would be like a diagnosis of a quack doctor who sees only the painful part and tries to treat that part as the cause of the disease. The cause of the problem lies in the central government, which implemented various policies in a complex manner and brought about complications.
First, the central government raised property taxes too high at one time, disregarding the resistance from citizens. The Ministry of Government Administration and Home Affairs increased the taxes a lot by changing the standards for the property taxes from “floor space” to “market prices.” While it did not allow local income taxes or local consumption taxes, the Ministry of Finance and Economy doubled the burden of property taxes, which are classified as the most typical local tax, by creating a new tax called the “comprehensive real estate tax.” The government just pretended to lower the tax rates of acquisition and registration taxes but in the long term made the amount of the taxes bigger than those at present by imposing taxes based on actual transaction prices. The government also drastically raised the transfer tax and eventually increased the tax burden on the entire process of acquiring, possessing and transferring real estate. In addition, it levied tax even on the rights to buy apartments and offices for residential use.
There is a saying that “taxes should be collected as if plucking a feather out of a duck.” The duck will stay still without feeling pain if its feathers are taken out gently one by one. Taxes should be collected in this manner too. If its feathers are yanked out all at once, the duck is bound to scream. Nevertheless, ignoring opposition from local citizens, the central government raised the taxes en masse, and so the government should be held responsible for the citizens’ refusal to pay them.
The second problem is that the government particularly increased property taxes among real estate related taxes. In the case of transfer taxes, they are imposed on the gains created by selling a house, so the increase in the transfer tax would merely reduce the gains from the transfer. But in the case of property taxes, they are imposed on the unrealized gains, so the property owners must pay the taxes with their own money. Therefore, for those who own one house per household and barely make a livelihood from their salaries, or for old people who are retired and whose entire property is a house, the increase in property taxes must be a great burden. Compared to advanced countries, some may argue that our effective tax rates are still low. But our tax burden even with the same amount of taxes could be higher than those countries because our housing prices per household income are twice as high as those of the United States. Also, it should be noted that our country has the largest amount of real estate-related taxes in total, including property taxes and transaction taxes, among the members of the Organization for Economic Cooperation and Development.
Third, the top-down approach in which the central government uniformly decided on the property tax rates across the nation is also a problem. Just as real estate prices differ according to the environment of each region and the level of pleasantness, safety and educational service, it would be reasonable for each local government to have different tax rates. In some areas, residents would be content with less service from their local governments instead of paying higher property taxes. In other areas, citizens would expect better service from the local governments even if they have to pay more taxes. And this is what autonomy is all about.
In 1978, California residents in the United States approved a bill to oppose the government’s one-sided taxation and restrict the rate of increase in property taxes, called “Proposition 13.”
I hope our government will recall and sincerely ruminate on the fact that the passage of that bill inevitably led to a reduction in the operation of the administration.

* The writer is the secretary general of the National Council of Mayors and Governors and a visiting professor at Korea University. Translation by the JoongAng Daily staff.

by Paik Sung-woon
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