Taxing issues for Bahk as clock ticks“Anchoring bias,” the latest buzzword being bandied about by Finance Minister Bahk Jae-wan, is a psychological term that refers to people’s tendency to make skewed judgments by relying too heavily on one piece of information when making decisions.
Bahk introduced the term, which highlights the dangers of letting early information color one’s perception and interpretation of subsequent data, while unveiling his latest tax revision plan under the outgoing administration of President Lee Myung-bak last week.
The term threw some light on how the finance minister struggled to devise the plan as he felt trapped by circumstances: Unable to make major changes that would not have time to bear fruit under the current government, yet still under pressure to improve the economy.
Unlike previous revisions, the Ministry of Finance did not attempt to revamp the framework of the current tax law as it awaits a changing of the guard in December, when the presidential election is scheduled.
Bahk initially harbored the ambitious plan of adjusting tax rates by income bracket, and levying new taxes on men of the cloth. However, he abandoned the plan, saying that, “We gave up, as there is scant chance of it being accepted by lawmakers.”
The latest tax reform bill that will make its way to the National Assembly in September includes only minute amendments. Now the onus is on lawmakers to impose further amendments or not.
Critics say the Finance Ministry has been irresponsible in leaving one of the most important tasks of the government in the hands of legislators who are, at least at the moment, focused on luring voters to vote for their respective candidates in December.
A 100-page booklet released by the government contains changes to 17 tax laws, while detailing months of deliberation by the government to raise tax revenues by making small but incisive changes.
The ministry said it wants to achieve two goals with the latest tax revamp. One is to enhance the government’s fiscal soundness and the other is to boost the domestic market. As such, it said the minimum tax rate for large conglomerates will rise from 14 to 15 percent, and the minimum threshold for taxable income from financial derivatives will be lowered from 40 million won ($35,374) to 30 million won. The ministry chose not to meddle with the maximum tax rates for corporations or income.
These measures will likely be enough to reach the targeted tax revenue of 1.66 trillion won. Of the total, 99.8 percent will come from conglomerates and affluent workers, the government said.
However, critics warn that this could result in a contraction in business investment and consumption by high-income earners, and is not necessarily the best solution to boost the domestic market.
Raising taxes is a thorny issue at a time when the economy is stumbling along and trust in the government is unusually low. With economy growth forecasts hovering just above 2 percent next year, and growing distrust among consumers about the government’s economic policies, such minor changes to tax laws will not produce tangible outcomes, local pundits predict.
By Song Su-hyun [firstname.lastname@example.org]