Reduce expenditures firstThe government proposal to increase the tax burden on middle and high income brackets is meeting strong resistance. Ruling and opposition parties vow to rework the government’s draft of a new tax code, claiming it amounts to tax a bombshell on middle and upper income earners. The government is right to tweak the tax code by offering deductions instead of exemptions. But the action should not sharply increase the tax burden for those with middle incomes or higher. The focus of the legislative review should be to prevent excessive concentrations of taxes on individual income brackets.
The tax revisions suggested by the government and politicians do not ensure enough tax revenue to finance various new and existing welfare programs. Even if the new tax code is implemented as it is, new revenue would stop at 2.5 trillion won ($2.1 billion) by 2017, falling far short of the government goal of raising 48 trillion from tax revenues to carry out welfare programs pledged by President Park Geun-hye. If the government eases the burden on middle and higher income classes, the tax shortfall would rise no matter how hard tax authorities try to dig out unregistered taxes.
The Democratic Party suggests the government end tax exemptions for the rich and toughen levies on high earners and large companies. The government and ruling party argue that they can increase taxes enough by targeting the underground economy and unregistered tax practices and scrapping various exemptions. Either way, the state is out to collect more taxes. But it remains unclear how it aims to do so and whether it can succeed. How is an increase in tax revenues possible without an added burden to any group?
The government and legislators are in a paradoxical trap because they are looking only at income and expenditures. The problem is in the huge welfare expenditure plan after the ruling and opposition candidates vied to win votes by promising all kinds of new social benefits. But to honor the promises, they would somehow need to come up with funding through tax increases. In spite of this dilemma, they are busy trotting out various new spending plans. In the first half of the year, the National Assembly passed 1,700 spending measures totaling 175 trillion won. Tax revenues are expected to fall short by 20 trillion won this year. Lawmakers seem to approve spending without regards to where the funds come from.
When revenues are short, reduce expenditures first before collecting more taxes. It is the least the government should do before asking taxpayers to pay more. The government and political sector should work out ways to save more and cut back as much as they can.