Tax cuts for growthThe Lee Myung-bak administration has unveiled its tax reform plans.
The aim is to expand growth through tax cuts, which is believed to faithfully reflect the tax reforms that the administration promised when it entered office.
The tax reforms are the first step to shake off the confusion surrounding the administration’s economic policy and lethargy and establish a foundation for its economic growth policy.
The tax reforms are especially meaningful because the taxation system will modify the past decade’s system, which consisted of increased taxes overall and punitive taxes.
A characteristic of tax reform is to cut taxes by decreasing rates on income, corporate, transfer, composite real estate, inheritance and gift taxes, or by lowering the tax bases.
A tax reduction policy is a global trend aimed at increasing competitiveness. It is also the most effective measure for overcoming a looming economic slowdown.
The policy also corresponds with the basic principle of low tax rates and a wide range of tax resources.
However, it is regretful that the government has delayed cuts in corporate tax until next year for fear of reducing tax revenue.
It is also unfortunate that the composite real estate tax, a punitive tax that the previous administration of Roh Moo-hyun introduced, remains in effect and only the tax base is to be lowered.
The composite real estate tax must be abolished and integrated into income tax.
If it is difficult to do that immediately, the tax reforms should at least include adjusting the target of corporate real estate tax from a property worth more than 600 million won ($545,000) under the current system to a property that is worth more than 900 million won.
The problem is how to fill the tax revenue and how to allay opposition that maintains that tax reforms only benefit rich people and business conglomerates.
Resources can also be found by reforming different kinds of tax exemptions and tax cuts and by cutting the state budget.
The argument that tax reforms only benefit the haves is not true, as tax cuts don’t provide privileges to a certain class and low-income people hardly pay any taxes.
It should be emphasized that the goal of the tax cuts is economic growth.
The overall impact of any tax reduction should be invested in the entire economy as a way of initiating growth.