[Viewpoint] A taxing political problem

The debate over tax breaks and how they affected the midterm elections in the United States had an echo here in Korea.

Opposition party members attacked the government and ruling party for a tax policy that centered largely on cuts for the wealthy and large corporations. A Grand National Party spokeswoman said the ruling party was considering suspending the cuts in income tax for the rich and big companies planned for 2013.

The presidential office reacted immediately, and touchily, that there was no change in the plan to cut those tax rates. Tax breaks for the rich have always been a touchy issue. The liberal opposition parties are stocking up on ammunition to attack the conservative government’s tax policy. The position in the ruling party is mixed.

Grand National Party Representative Chung Doo-un explicitly demands that the party forsake the tax cuts for the wealthier population. “My constituency is convinced that we will lose the next election if we pursue tax cuts for the rich,” he said. Chung handed a petition to former GNP chairwoman Park Geun-hye, who leads a sizeable faction in the ruling party, asking for her to second his plea for the ruling party to drop the tax cut plan.

In the opposite corner stands former finance minister Kang Man-soo, now a presidential advisor on economic affairs, who is a fervent proponent for tax cuts to spur spending and boost the economy.

Representative Chung’s concerns are understandable. The governments in Japan, England and the Netherlands all fell in the wake of the global economic crisis. The Republicans also declared victory in the latest midterm elections in the U.S. Governments in Germany, Australia and Northern European countries just barely held onto power after elections. Voters are quickly losing patience with the prolonged economic hardship.

The pro-Park faction in the ruling party is still sitting on the fence. Representative Lee Hye-hoon, who is loyal to Park, stressed that the party’s tax policy is targeted primarily to benefit the middle-class, not large companies and families in the high-income bracket. The proposed cuts that benefit the better-off brackets was mapped out before the economic crisis.

When asked if Representative Park would clarify her position on the tax cuts, Lee was evasive. “For now, probably not ... But I can’t say the same once election season takes off.”

Kang, defender of the tax cut plan, is head of the Presidential Council on National Competitiveness. He argues that tax rates should be brought down to international levels to hone national competitiveness and stimulate the economy for further growth.

His argument is well grounded. The country was able to rebound from the global economic crisis faster than other economies thanks largely to a weak currency and stimulus measures accompanied by tax cuts. Korea became the rare country to see its sovereign debt ratings go up while many others suffer downgrades amid the global slowdown.

Kang snapped that a president’s campaign promise cannot be cancelled simply to meet the demand of individual politicians, warning that the ruling party will regret it if it backs down from its tax promises.

It is too early to declare victory for the proponents for tax cuts. Representatives from the capital region are in fear of being branded as party members promoting the welfare of the elite and wealthy. Even legislators from the wealthy Gangnam constituency are whispering their doubts and shaking their heads.

More than half of the members to the Planning and Finance Committee of the National Assembly, who will be deliberating the tax revision, also support the idea of nixing the proposed plan to cut taxes for large companies and higher-income bracket.

The presidential office and ruling party leadership are expected to shelve the discussion until next year. They don’t want another headache this year. But next year is the preparatory stage for the 2012 general and presidential elections.

Politicians are bound to fall prey to populism when they have elections coming up. Members of the capital region and pro-Park factions may back the opposition’s demands to drop the tax breaks for the well-off. It would be best to set the record straight right now. Tax cuts are an important issue that involve the country’s welfare and budget. These issues can’t be solved if economics and politics mix.

The issue is too important to be brushed aside. It is better to spill the beans now and get it over with. Ambiguity is cowardly and can levy a high price on politicians later.

*The writer is an editorial writer of the JoongAng Ilbo.

By Lee Chul-ho