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A no-tax-hike mirage

Published: 26 Jan. 2015, 23:16

Hearing a hundred times is not as good as seeing once. These words of wisdom receive nods from all those who have sat down to do their year-end settlements or fill out their forms for employees’ income tax payments. You need to have it done yourself to understand what all the outbursts of disgruntlement and bitterness concerning year-end tax bills are all about.

When the government announced a new tax code 18 months ago, it came under fire for increasing the burden on the middle-income bracket. It had been explained then that deductions for a salary worker with more than one child and private pension savings would be scrapped. But few had expected the backlash would be this strong. None among the bureaucrats would have dared to question orders from the new president to moderate tax codes as a part of broader efforts to even out economic inequalities.

The media should share the responsibility for contributing to the current mess. What have they done for the past 18 months ago? Why have they overlooked various tax loopholes hidden under the pretext of reducing income inequality? They blindly believed the words of the government when it announced a revised version a few days later, upping the cap on the tax hike to those earning 55 million won ($50,940) a year from the previous 34.5 million won. It repeated the government assurance that people earning 55 million won to 70 million won will see no more than 20,000 won to 30,000 won in additional tax due.

The opposition, which joins the chorus of criticism, also should be ashamed. Records of tax subcommittee meetings show no one from the opposition opposed the tax deduction plans. The opposition was happy to go along with heavier levies on the rich. It is a lie that the opposition heard no clear explanation from the government and ruling party. It is not deserving of its title if members of the standing tax committee didn’t bother to study the details of the bill themselves.

Of course, those feeling the most heat are the bureaucrats who drew up the new tax code. They were given the challenging mission of meeting the president’s slogan of better welfare without tax increases to promise a more equal society. They had to hit two birds flying in opposite directions with one stone. It may not have been so bad if they had bottomless coffers to start with. So they decided to pluck a few feathers here and there. They believed few would notice or be hurt with just a few gone. Little did they realize it would end up a handful.

What angers the taxpayers most is that the authorities returned to an empty nest, yet kept insisting they had not taken that much. The government in its first year worked under the banner of economic democratization or eased inequalities. In the second year, it promised to revive the economy. If it had quickly issued refunds for greater levies, holes from deduction adjustments in year-end settlements could have been less evident and not so painful. It also should have been more flexible and responsive by tweaking regulations to make exceptions at a time when the economy was doing so poorly. The administration was too cowardly on economic policy in the first year and too rigid in the second.

Amid screaming public outcries, the ruling party leader said it will make the government return taxes. It is part of the legislature’s responsibility to fix mistakes of the government. But tax refunds through retroactive application could be a dangerous precedent. Retroactive actions could be demanded and abused at random. The government has agreed to make refunds, but only to salary workers earning less than 55 million won a year. The refunds likely will be pitiful compared with the initial tax payments. Disappointment could transform into rage if returns in May are smaller than expected. What the government and politicians need to do now is talk frankly to the people and sincerely ask for understanding.

There is no free lunch. Increased social welfare has a price. It is time the taxpayers, politicians and government all face the music.

JoongAng Ilbo, Jan. 23, Page B5

*The author is the editor of business news at the JoongAng Ilbo.

by Jung Kyung-min