It’s how to fund welfare, stupid!

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It’s how to fund welfare, stupid!

Nine out of 10 Koreans believe the income gap in our country is too wide, according to a survey on social welfare policies conducted by Seoul National University. Self-awareness of the income class people belong to is also far lower than people in other countries. Seven out of 10 thought it was the government’s responsibility to resolve the income discrepancy. The call for a narrower wealth schism through broader welfare programs has gained consensus and poses a major challenge for the government.

The problem is how to fund them. To increase welfare benefits, there must be more money. The funds can come from the contemporary generation through higher taxes or future generations by issuing new debt. Even if the former should pay first, it remains debatable who pays more and by how much. In the survey, the respondents agreed that a tax hike is necessary to fund new welfare programs. But they believed it should be the rich who should take on the new burden. They answered negatively when asked if they were willing to pay more taxes.

But there is poor justice in this logic. The rich are already paying a handsome amount. About 40 percent of the entire working population in Korea does not pay income tax on their work salaries. The tax paid by the 40 percent middle class takes up only 5 percent of the total tax revenue. About 95 percent of the total tax for labor income comes from the 20 percent high-income bracket. The corporate tax is no exception. If the 1 percent rich individuals and companies are asked to pay more, they might resist or evade tax payments, or take their wealth overseas.

Public awareness of taxation is largely due to populism in the political sector. The ruling party pledged a 90 trillion won ($80 billion) increase in welfare spending - and the main opposition Democratic United Party, a 165 trillion won increase - over the next five years. But they assured the working and middle classes won’t have to worry about the cost, which is a flat-out lie.

Such funding is not possible just from collecting more from the 1 percent. The DUP, which promises to raise 33 trillion won for welfare funding a year, estimates an extra 1 trillion won from higher taxes on the rich and 2.8 trillion won from large companies. Even if the taxes on financial income and profit gains are included, it cannot get more than 7 trillion won - this is poor math. The middle class must pay more taxes to gain welfare benefits. But politicians refrain from speaking it aloud in fear of losing votes. The people must be fully aware of this reality.
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