Start from the ground up on taxes

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Start from the ground up on taxes

Members of the main opposition Democratic Party submitted a bill to revise the income tax code by creating a new income bracket for those who earn more than 500 million won ($456,500) per year and levying a new top tax rate of 45 percent. Other lawmakers also proposed that the top end of the 35 percent and 38 percent tax brackets be lowered to effectively raise the taxes on high-income earners.

The bills will almost certainly trigger a controversy about tax hikes on the wealthy. President Park Geun-hye and her administration are already in a budget squeeze due to a sharp fall in tax revenues amid the economic slowdown. It promised to cut tax expenditures by 84 trillion won and boost tax revenues by 51 trillion won over five years. But both targets are far-fetched under the current circumstances. The government faced strong resistance to its proposal to revise the tax code to remove many tax deductions and exemptions. It also lost a major tax revenue source when it lowered permanently the real estate acquisition tax in order to stabilize the rental housing market. Cornered, it may be tempted to give in to reckless tax hikes.

But to demand tax hikes, it must have a strong cause. The administration, as well as the legislature, must cut back on expenditures and govern with austerity. The opposition must step back from its stance that it cannot bargain on welfare benefits. Rather, they must show dramatic cuts in spending. If not, the president should come forward honestly and persuade the people that a tax hike is inevitable to improve social welfare programs. It is the least the president and the Assembly should do before demanding that taxpayers pay more.

Politicians push their campaign to hike taxes on the rich by claiming that is the general trend in other advanced countries. But such a move goes against the principles of fair taxation and keeping tax rates low while widening the tax base. In fact, the income tax should be modified in a way to make everyone comply with their tax obligations, reduce deduction levels, and collect taxes efficiently, according to the current rates. The income tax brackets, which have been untouched for 17 years, should be revised upward incrementally along with the tax rates.

Most of all, tax hikes should not be political. We need a roadmap for tax reform. We must consider how much we need for social security and how direct and indirect taxes work together. Salaried workers are an easy target; our leaders should rewrite corporate and sales tax rules, as well as those for income taxes. Half-baked ideas are already rampant. Voters will agree if the plan is plausible.

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