The tax hike dilemma

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The tax hike dilemma

People are in a fury about the government proposal to do away with some tax credits for two reasons. First, the presidential office and government stubbornly insist that what they proposed last week was not a tax hike because rates weren’t changed. But increased tax bills in any way is a hike. Yet government officials insist on ridiculous excuses. Second, the authorities resorted to an easy choice of increasing tax revenues by dumping the burden on salary-earners who have no way to resist. That’s why the tax controversy is wearing on people as much as the current heat wave.

Tax hikes have not been a topic for a long time here. Koreans have not experienced a tax hike in the real sense since the introduction of the consumption or sales tax in 1977. The tax rate has remained around 20 percent for decades. But the country has no better way to fight the current impasse of a structural economic slowdown in need of extra fiscal expenditures amid decreasing tax revenues. It must increase taxes. In the first half of the year, the government was already short 10 trillion won ($8.97 billion) in tax revenue. It would have had to issue debt on a major scale next year in order to run the economy and country.

President Park Geun-hye has ordered the cabinet to revise the tax proposals from the starting point amid the rapidly spreading anger. But the president holds the fundamental key to the problem. If she insists on her vision of creating a welfare state, there’s no way out but to increase taxes. The president has to be honest with the people. She must persuade them that if she wants to fulfil all the welfare promises she made to them during her campaign, she inevitably needs help from taxpayers. From their wallets.

The ruling Saenuri Party appears to be misunderstanding the president’s order to make some tweaks in the tax measure. It plans to lower the burden on people who earn below 55 million won a year. But we need a more fundamental approach. The government must, first of all, promise dramatic cuts in annual expenditures. It may even have to walk away from some welfare programs.

We must decide which is the better way to finance welfare: A tax hike or an increased deficit through more government debt. Under current economic conditions, debt could be a better choice. Authorities also must try to balance the incongruity in various taxes - income tax, corporate tax and consumption tax. The government experienced a strong backlash because it chose the easy target: Income tax. To better persuade ordinary taxpayers, it must raise taxes on high-earners in professional fields and consider a levy on the religious sector. Tax is a sensitive issue. Tax hikes demand strong political leadership. The president must be resolute, honest and open, or taxpayers will turn their backs.
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