[Viewpoint] Feeding on hatred and jealousyConspiracy theories and urban legends have become part of our lives. The nation’s young are angry about everything. Even a shocking sex video of a celebrity is considered a government conspiracy. They say the video is not enough to cover up the controversy over the Korea-U.S. free trade agreement and the DDoS attack.
The young generation has lost hope, struggling with despair and dissatisfaction. Some politicians fan the flames of nationalistic insecurities as a confrontation between colonialism and patriotism. But hatred and jealousy cannot resolve generational discord and economic issues.
According to economic principles, when you lower the interest rate, consumption grows and savings decrease. However, after its economic bubbles burst, the exact opposite happened in Japan. When the government lowered the interest rate to boost the economy, people saved more and spent less. It is the paradox of an aging society, where people prepare for retirement. As households became more frugal, private spending in Japan shrunk drastically. Lowering the interest rate actually contracted the market and resulted in the “lost 20 years.”
Korea is also struggling to boost its economy for those in their 20s and 30s. Increasing spending is a challenge, and lowering the interest rate is not easy because of the price level. By February or March 2012, the European financial crisis is likely to climax. Korea’s economic growth rate is to be 3 percent, and the number of new jobs will be half of this year. Naturally, young Koreans are growing more and more dissatisfied in the gloomy atmosphere.
At this juncture, they should be more inventive than be angry. Personal financial assets are still greater than household debt. The real estate market is monopolized by the older generations, who keep their wallets closed. Clever young Koreans should use tactics to encourage the older generations to spend money and release their assets to the market.
One economic policy aimed at “fairness” that most distorts reality is the inheritance tax. By nature, an inheritance tax is “double taxation,” as assets on which you have already paid income tax are taxed again. This is the reasoning behind the global trend of abolishing the inheritance tax. In Korea, the inheritance tax became a punitive device in the Kim Dae-jung and Roh Moo-hyun administrations. The rate is the highest in the world at 50 percent, and an additional 30 percent is imposed on the stake of the largest shareholder.
Therefore, people try to hide assets and use illicit methods to avoid taxation. In Europe, the inheritance tax rate is around 30 percent. Canada, Australia, New Zealand, Hong Kong, Singapore and Sweden have abolished the inheritance tax. These nations are known for fairness and equality. Their logic is that it is better to allow easy inheritance and levy taxes on capital gains later on.
We can learn from Japan, which stubbornly adhered to a heavy inheritance tax. The Japanese tend to keep their assets until they die, leading to a distortion in private sector spending. The young are struggling to make ends meet in tiny apartments, while tourist sites are crowded with affluent elderly.
Nowadays, Japan is troubled with the curse of its inheritance tax. Weekly business magazine Diamond featured an article titled “Goodbye Japan” about the exodus of rich Japanese to Singapore and Malaysia. Using the strong yen, families with more than 5 billion won ($4.4 million) in assets are leaving the country to avoid the 50 percent inheritance tax,
If you mention easing the inheritance tax in Korea today, you are basically courting criticism and attack. The opposition party and the Blue House and the ruling party are busy “bashing the rich” to please the public, angry over polarization. People have also grown overly jealous of conglomerates, which are thriving in the global market. But hatred and anger will only encourage illicit inheritance and an underground economy.
When the inheritance tax is lowered to a reasonable level, the enormous assets of the elderly can flow into the market smoothly. It will boost the economy, add jobs and bring hope to the depressed, young Koreans. People praise Warren Buffett’s opposition to the abolition of the inheritance tax, but this is a story of a distant country. Instead, we have more to learn from Japan’s failure. We need to calm the conspiracies that have been feeding on hatred and jealousy.
*The writer is an editorial writer of the JoongAng Ilbo.
By Lee Chul-ho