Time to talk about a tax increaseLee Joung-woo, a professor at Kyungpook National University who is serving as the head of Democratic United Party presidential candidate Moon Jae-in’s economic democratization committee, has talked about a universal tax hike. He has said a blanket tax increase is the “honest and right direction” to finance further social welfare spending. He invited the presidential candidates to talk frankly about tax increases. Lee is right, and it is about time a universal tax increase became a serious point of discussion.
The ruling and opposition parties as well as independent candidate Ahn Cheol-soo have all pledged to increase social welfare spending, but none of them has talked about a realistic way to finance the plans. They emphasize that there will be no extra taxes directly affecting middle- and lower-class citizens. During the April legislative election, the ruling Saenuri Party estimated its welfare program would cost an extra 15 trillion won ($13.5 billion) a year, while the main opposition DUP’s would demand 33 trillion won. They claimed the funding would come from taxing the rich. The government was pushed to create a new highest tax bracket late last year. The tax rate on earners of more than 300 million won a year was hiked to 38 percent, but the extra revenue stopped at 800 billion won, hardly enough for welfare promises.
Moreover, the parties’ estimations were too moderate. The Ministry of Strategy and Finance forecast that the welfare programs of the parties would cost 54 trillion won combined a year. The Korea Economic Research Institute estimated the annual bill would come to around 54 trillion won for the Saenuri policies and 128 trillion won for those of the DUP. Without collecting more taxes, none of these programs is realistic. Yet candidates have sidestepped the topic of taxes for fear of losing votes.
It is time that the debate among presidential candidates moved to the topic of taxes to fund the welfare programs. They must discuss specific rates to levy on different income brackets and present detailed programs on a universal hike. We are behind in social welfare programs compared with other advanced nations because of a relatively low tax burden. But collecting more taxes from the rich is insufficient in financing the costly welfare programs.
The tax system is already heavily unbalanced. The top 20 percent pay 95 percent of all income taxes. Policy makers should work on raising taxes for the middle-income bracket. It may be an unpopular move, but it is nevertheless necessary.