[Outlook]Punitive tax measures must go

Many may have forgotten, but since the Roh Moo-hyun administration entered office its tax policy has turned out to be troublesome.
In the early period of the administration, Kim Jin-pyo, the deputy prime minister for economy at that time, pledged to lower corporate taxes in a bid to invigorate corporate investment but faced resistance from the field, ending up suffering a huge loss of face. As this episode shows, the administration’s tax policy was ill-boded from the beginning. As time passed, tax policies got in the way of everything and played a major role in the fall of the administration’s approval rating to single-digit level.
The administration did not know the seriousness and sensitivity that tax policies imply. It imposed taxes too easily, believing that everything would be all right as long as it puts the word “reform” before everything.
There are plenty of rulers in history who lost power because they did not realize how strongly people would resist or revolt against heavy taxes.
The incumbent administration’s understanding of taxes is very wrong. Its hatred of rich people is the basis for its tax policy, thus taxation has become excessively punitive. It is natural to impose punishment on tax evasion.
However, a tax policy is different from administrative measures aimed at punishing tax evasion. A tax policy should be part of the whole economic policy.
Particularly, if a tax policy emphasizes hatred toward the rich and is designed to punish them, it can ruin the economy. The Korean administration’s tax on real estate is a good example.
The government’s real estate tax is aimed solely at stopping and punishing speculators. The government pushed the policy without considering possible side effects. It has changed and enhanced the policy numerous times, but punishment remains at its core.
There would be nothing to complain about if the policy had produced good results. But it is hard to understand why the administration clings to its ineffective tax measures when the president even admits that the real estate policy has been a failure.
The government says the property holding tax will be enhanced beginning this year, and I wonder how it will cope with the results.
It would be understandable if the figures involved had the competence to endure and handle the political and economic problems that will erupt in the course of imposing heavy taxes.
It is pitiful that the administration is stubborn about its policy even though it is incompetent and is not prepared to deal with the results that will follow the policy.
The government must change the current tax policy on profits made from selling houses. Even if the government needs to impose such taxes, it should consider individuals’ situations so that taxpayers are convinced of the tax’s legitimacy.
There are a variety of ways to modify the tax. It is good to have a house’s market price as a base when imposing the tax. But it is wrong to impose punitive taxes when there is a huge margin between the price of purchase and the price of sale. That goes against the principle of the free market.
Like in some other countries, when a person sells his house and moves to another, the government should consider the price of the new house as part of moving costs and make it exempt from the tax.
People can then move to houses that they like more.
However, one cannot believe one’s ears when one hears the top economic official say that if someone is unable to afford a tax under the current tax system, one can sell an expensive house and move to a less expensive one.
It is unjust to impose excessive taxes when a person clearly has no intention of speculating. It is unfair to apply punitive tax rates to people who have lived in their houses for a long time or elderly citizens who have retired. They did not get their houses for free.
They were exempt from excessive taxes until recently, and other countries maintain this exemption. But the administration discarded the former protection measures entirely in the name of reform and egalitarianism and has been strong-headed about its own measures.
It is not too late.
The government must ease the tax on profits from real estate transactions. That matches the original goal of the tax policy, which is to correct the real estate tax system by increasing the property holding tax while lowering the tax on the sale of houses.
The housing market will be normalized only when the government leaves a back door open for multiple house owners and thus increases the volume of transactions in the real estate market.

*The writer is the CEO of the JoongAng Ilbo News Magazine.

by Lee Chang-kyu