[VIEWPOINT]Generations and tax policy

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[VIEWPOINT]Generations and tax policy

In a proper country, its people would be proud of paying taxes and those who pay taxes a lot would be respected a lot. If not respected, they would at least be acknowledged. But for whatever reasons, our country does not seem to have reached that level yet.
Rather than being satisfied with paying taxes with a belief that the tax money would be spent for ourselves and our society, the people seem to feel themselves wronged, asking, “Is there anything this government has done to help us earn this money?” It is a regrettable situation. On this occasion, who would say no to an offer of a tax cut?
There have been heated debates lately in the National Assembly over a tax reduction. More exactly, we are in a situation where arguments for a tax cut and expansion of spending are in conflict.
The opposition parties contend there should be a tax cut of 9 trillion won ($8.5 billion) to revive the economy, and that the common people’s livelihood will be better off if the economy revives.
On the other hand, the government and the governing party argue that the benefits of a tax reduction will go to the rich and the middle class only, and if the revenue from taxes drops, there will be less money to spend on welfare for the common people. So they suggest collecting more taxes of 2 trillion won and increasing government spending. Both sides have a point, although I don’t know which measure will have the greater effect.
The people are naturally divided into those who support a tax reduction and those who support an expansion of government spending according to which class they belong to ― the common people, the middle class or the wealthy class. According to an analysis of game theory, in this case, the discussion is highly likely to come to a conclusion in which a proper tax reduction and a proper expansion of spending are chosen at the same time, rather than one side being chosen unilaterally.
This is because such a conclusion is beneficial to both sides. The problem lies in the fact that such a conclusion increases the burden on future generations through the expansion of the financial deficit.
Future generations will carry a substantial burden without even knowing what a tax reduction, or large-scale national projects are. It was just two years ago, in planning the repayment of public funds over 25 years, the government made those who did not even know why the foreign exchange crisis of 1997 had occurred carry 44 percent of the total burden of public fund repayment.
In addition, in 10 years, when they begin to enter society and pay taxes in earnest, the number of those who can pay taxes will begin to fall more rapidly than in any other country. In a situation where the number of taxpayers decreases, revenues hardly increase. Nevertheless, long-term financial spending plans that require an astronomical amount of money are being announced here and there endlessly.
We were surprised to know that as much as 156 trillion won of public funds were injected into the economy. We are now dumbfounded to hear that the total cost for national projects exceeds 700 trillion won. Amid all this, some even argue for reducing taxes by 9 trillion won every year. I cannot figure out how the government will be able to solve all these tough tasks without leaving the burden to future generations.
There are not just conflicting interests among the common people, the middle class and the rich. We should not forget about the conflicting interests between the present generation and future generations. It is not right for parents to fail to take into consideration the position of future generations because their opinions may not affect the elections.
We live in a world where people do not appreciate our parent’s generation for their achievement of raising our country from the poorest country to the threshold of being an advanced country. If we leave an excessive burden for future generations, I am very worried over what treatment we will receive from them in 10 or 20 years time.
Advocates of a tax reduction say that they would simultaneously seek to reduce taxes by 9 trillion won and cut spending by over 10 trillion won. If they pursue the expansion of spending along with a strategy of reducing both taxes and spending at the same time, it is highly possible that they will cut taxes first and reduce spending later.
If they truly think of future generations, they should put the spending cut before the tax reduction. If they have a surplus by doing so, they should reduce the burden of the repayment of public funds that they left to future generations. If there is enough money left after that, they should discuss a tax reduction then. I think this is the right order.

* The writer is a senior research fellow at the Korea Institute of Finance. Translation by the JoongAng Daily staff.


by Park Jong-kyu
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