‘Buffett tax’ no cure-all for economic imbalances
The bill picked up its sobriquet in homage to Wall Street investor and billionaire Warren Buffett, who has endorsed similar action in his native U.S.
However, critics see the move as part of a calculated political agenda as it was approved just months before the legislative elections in April, and with an eye on the presidential elections in December.
Many also fear it will make the wealthy less inclined to return their gains to society, and so do little to bolster the administration’s target of creating a fairer society.
Before the bill was passed just before midnight on Dec. 31, the ruling Saenuri Party (formerly the Grand National Party) and the opposition Democratic United Party (formerly the Democratic Party) - were in conflict.
The DUP argued that the bill fell short of the mark and demanded that the stakes be raised even further, with workers who pull in 120 million won a year or more forced to hand over 40 percent of their earnings.
But the ruling party ultimately ignored their calls and railroaded the bill through the assembly.
Before the amendment, the highest tax rate of 35 percent was levied on those who earned 88 million won or more a year. Now, Koreans who command roughly 3.5 times this salary will have to pay an additional 3 percentage points as tax.
The ruling party’s move came amid concerns that it was becoming unpopular and shedding votes ahead of this year’s elections for not caring enough about the welfare of the public.
This shifting dynamic was reflected in the Seoul mayoral by-election last October, when the ruling party’s candidate Na Kyung-won lost the race to Park Won-soon, who had the support of the liberal camp - not to mention the endorsement of software mogul and college professor Ahn Cheol-soo.
Meanwhile, the Ministry of Strategy and Finance has blasted the ruling party for its last-minute move to get the bill approved, saying that “tax policy is not something that can be changed overnight.”
“The National Assembly was wrong in approving the bill,” said an official from the ministry. “We are aware that the country’s overall tax policy and system needs to be revised to better reflect social and environmental changes, but such amendments should not be politically motivated.”
One of the ironies is that not many Koreans will be subject to the country’s highest tax rate, meaning that it is unlikely to generate significantly more tax revenue for the government.
According to data for 2010 supplied by the National Tax Service, only 13,885 Koreans earn more than 300 million won a year. If nontaxable income is removed from the equation, the number who would be subject to the Buffett tax drops to around 10,000, or just 0.07 percent of all 15.12 million tax-paying workers in Korea.
The tax agency calculated that this would generate an additional 100 billion won in revenue for the government - a drop in the ocean considering that Korea’s fiscal deficit stood at 25.3 trillion won last year.
“Imposing higher taxes on the very rich is not the best nor the only solution,” said one industry official. “It seems that the ruling party’s decision to pass the bill was merely designed to show the public that they place a premium on welfare, and they hoped to use it to attract more votes ahead of the upcoming elections.”
Additionally, the tax agency’s data also showed that in 2010 there were 26,870 high-income earning Koreans with specialized jobs, such as lawyers and accountants. But only 383 would be eligible for the new tax, as the rest sourced much of their income from nontaxable means.
Some critics argue that the overall taxation system in Korea requires a long-term overhaul and such quick fixes do little to narrow the widening gap between rich and poor.
As such, controversy over the issue continues to rage among the nation’s political circle.
Due to the relatively minor impact the Buffett tax is expected to have on Korea, lawmakers and the government are mulling supplementary measures that could be introduced after this year’s elections.
Finance Minister Bahk Jae-wan said that the ministry “will come up with complementary measures” for 2013. One option is adding another tax bracket for salary earners who make between 88 million won and 300 million won a year, he added.
By Lee Eun-joo [firstname.lastname@example.org]
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