Tax hike isn’t a panacea

Income tax was improvised by Western societies to pay for modern wars. Great Britain first announced an income tax in 1799 to raise funds for the Napoleonic wars. The Germans were the first to introduce legislation to enforce government levies on individual incomes in 1808 to, once again, pay for weapons and war preparations. In America, President Abraham Lincoln temporarily collected a personal income tax in 1862 during the American Civil War. In 1894, a Democratic U.S. government imposed the first peacetime income tax but the Supreme Court in the following year ruled that taxing personal property unconstitutional. The U.S. had to amend the Constitution in 1913 in order to make the income tax a permanent fixture in the U.S. tax system.

State levies on personal income and wealth were sought for a common purpose - to quickly raise funds during times of crisis. In order to persuade taxpayers, most income tax policy follows principles of fairness, with the rates higher for people with higher incomes. The United Kingdom employed the modern concept of progressive taxes by levying a marginal rate according to the combined personal wealth from land, employment, trading and overseas profit, and other income. How the authorities were able to figure out how much individuals earned in those days remains unclear, but at least they employed the concept of taxing according to income levels.

Many question if our income tax system, especially taxes collected from wage-earners, is true to the principles of equity and justice. According to a study by the Federation of Korean Taxpayers and Hana Bank, people earning between 70 million won ($64,540) and 80 million won a year would be hit with the biggest tax growth under the new income tax revision proposed by the government. Is putting the biggest burden on middle-income earners a fair idea?

Who exactly fits into this income bracket? They are people in their 40s and 50s who must devote most of their income to pay for costly private education to get their children into college. Most also have to support parents. Whether it is in the form of cutting back tax breaks or not, collecting a larger share of households’ tight salaries is basically a tax hike. Does the government really expect they will understand if it tells them it was merely following a principle of tax equity?

We all agree that people who make a decent living should pay a little more to improve our social welfare system. We also understand we may all have to chip in a little more when the government is short on tax revenue. But there is a huge difference between what we understand and what we can actually do. People who barely can make ends meet cannot easily agree to extra money withdrawn from their paychecks.

Is raising taxes a panacea for all of the problems? It does not fix everything. But more people are demanding the government impose higher levies in addition to revising the tax income credits.

For a long time, Japan has been divided on a tax hike. The Japanese can’t decide on a proposal to hike the current 5 percent sales tax to 8 percent next April. In 1997, Japan raised the sales tax from 3 percent to 5 percent. It suffered an economic contraction the following year due to a sharp fall in consumer spending. The government fears a sales tax hike could further depress the economy. But it has no alternative because of its enormous fiscal deficits. If it does not improve its public finances soon, government debt could be affected. The Tokyo government is weighing which is the bigger risk and will make a decision in early October.

Before our government decides its own way to fiddle with out tax system, it should re-examine President Park Geun-hye’s list of campaign promises. Park will need a total of 135 trillion won ($124.4 billion) over the next five years to honor all her promises. She hoped to raise 60 percent of that extra spending from being more efficient with expenditures, and 40 percent from tapping into the underground economy and getting tax payments that have been evaded. But the government has not specified how it plans to be more efficient in its spending. No one can explain what will happen to the costly welfare plans. Most social infrastructure projects go beyond their original budgets. There are also a lot of local government projects that must be subsidized by the central government.

Everything must be done in order. Even when a couple starts dating, they must take things one step at a time. Tax hikes are no different. Who would open their wallets wider just because the government demands it? The government must show it has done all it can before it asks for extra help from the taxpayers. And the spender must share the pain with the guy who pays the bills. After all, the president herself had promised more efficient spending. Without austerity efforts from the government, ordinary wage-earners won’t easily part with more of their hard-earned salaries.

*The author is an editorial writer of the JoongAng Ilbo.

by Nahm Yoon-ho