Gov’t plan to cut tax credits receives negative reaction

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Gov’t plan to cut tax credits receives negative reaction

The Park Geun-hye administration came under heavy fire from both politicians and economic analysts after it announced it would do away with some tax credits to boost revenues, increasing taxes for the middle class.

The Blue House responded by asking the public to bear what it considers a small burden for the larger good. It said the tax hikes were designed to be so small they’d barely be felt.

Choi Kyung-hwan, floor leader of the ruling Saenuri Party, said yesterday the tax reform plan needed to be revised in a way to lessen the tax burden on ordinary employees in the middle-income brackets.

“Worried about excessive burdens on the middle class, the Saenuri Party will make a thorough review of the tax reform plan once it arrives in the National Assembly,” Choi said at a party leadership meeting. “The plan must be rectified if it puts too much of a burden on ordinary salaried workers.”

According to the revision announced Thursday, 4.34 million employees who earn more than 34.5 million won ($30,984) a year will pay at least 160,000 won more in yearly income tax.

The ruling party pounded out an agreement with the Ministry of Strategy and Finance on the tax reform plan early this week, but it apparently changed its stance due to an unexpectedly negative reaction from the public. The opposition Democratic Party, on the ninth day of anti-government protests over a different issue, denounced the tax policy revision.

Party Chairman Kim Han-gill criticized the Park Geun-hye government for “taking backward steps” from improving the livelihoods of the working class.

“Such a move can be interpreted as the Park government’s abandonment of the economic democratization initiative and its going against public sentiment,” Kim said. “The plan will push middle-class people, already collapsing, to the brink of a cliff.”

“Regular employees’ salaries are fully exposed to excessive taxation by the government,” DP lawmaker Jeon Byung-heon said. “The opposition party will block passage of the plan in accordance with the nation’s taxation law.”

In response to growing criticism, the Blue House tried to defend the finance ministry’s tax plan.

Cho Wong-dong, the president’s senior secretary for economic affairs, admitted that it was regrettable to end or reduce tax credits for people, but asked for the public’s understanding.

“People who earn more than 34.5 million won will have to pay 160,000 won more in income tax annually,” Cho said. “That will be about 13,000 won monthly. Isn’t that affordable?”

Cho dismissed criticism that the government is, in fact, increasing taxes.

“Increasing taxes means raising tax rates or creating a new type of tax,” he said. “Expanding tax revenues by reducing tax credits is quite a creative idea and it’s not at all a tax boost.”

Analysts said the government may not have kept in mind that the middle class feels overtaxed already.

A report by Hyundai Research Institute released yesterday showed four-member households with breadwinners in their 40s are the most burdened taxpayers even if they belong to the top 20 percent income bracket.

“We found a pattern that top earners - middle-class households with breadwinners in their 40s and regular employees - have been paying taxes more and more over the course of time, while self-employed people and low-income households have been paying relatively less in tax,” said Kim Dong-yeol, a research fellow at the institute.

Kim said he analyzed ratios of incomes to tax payments of each income bracket in the study.

Tax rates of the top 20 percent income bracket rose from 3.7 percent in 2006 to 4.5 percent last year, while the rate for the bottom 20 percent rate fell from 2.4 percent to 0.9 percent during the same period, the report showed.

“It’s a general trend that the government tends to tax more to fund welfare programs, so we can’t say the latest tax reform plan is wrong,” he said.

“It is inevitable to see a growing tax burden on the working class, but if the burdens are considered unreasonable, the reform plan needs to be revised,” said Sung Tae-yoon, economics professor at Yonsei University.

“It is right to tax more those who earn more, but it is not right to expand tax exemptions for the low-income class at the same time.”

For the next five years, the government aims to rake in 2.49 trillion won in tax revenues.

Top earners and conglomerates will pay an additional 2.97 trillion won in tax, while the working class and small businesses will pay 620 billion won less than before.

It also wants to raise the country’s total individual tax rate, including all taxes an individual pays, to 21 percent by 2017, up from 20.2 percent last year.

BY SONG SU-HYUN [ssh@joongang.co.kr]


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