Let’s debate taxesAll citizens are obliged to pay taxes in accordance with the law — Article 38 of the Korean Constitution. There are two things that no human can avoid — death and taxes. We all die one day. We must pay taxes as long as we breathe. Taxes sustains a state. Without them, it cannot exist. That is why taxes are levied on individual properties and incomes.
Tax levels beyond reason or in times of hardship can cause resistance and social conflict. A regime can be toppled and replaced. The French Revolution was triggered by the calling of the Estates-General, an assembly of the nobility and other representatives, by King Louis XVI to discuss a regressive tax system at a time when the state was nearing bankruptcy in 1789. The Tea Act of 1773, which lifted duties on tea sold by the British East India Company in Boston while levying them on imports from other colonies helped start the American Revolution and the break from the British Crown. Taxes have acted as flash points in modern civilian revolutions.
Taxation works to appropriate and distribute wealth. Conflict is inevitable if the gap between the rich and poor widens. Taxes can help even out the difference. Many call for greater taxation on the rich in order to use the excess to help the poor.
Then there is the opposite view that taxes should be lowered to ease the burden on the poor and give households and companies more leeway to spend to revitalize the economy. When taxes are reduced, economic activity and productivity can pick up. Incomes for poorer households would improve and — almost paradoxically — boost tax revenues.
The ultimate purpose of a hike or cut in taxes is the same: to make lives better and happier. The difference is whether the aim is to even out the distribution or to stimulate growth. The choice hinges on the political conviction of the leader. One must choose between growth and distribution, or efficiency over impartiality. The tax code therefore should reflect the leader’s philosophy of governance.
This year’s proposal for a revision in the tax code released recently by the Ministry of Strategy and Finance has none of that. It sits squarely on the fence, undecided whether the government should expand welfare or stimulate growth through tax policy. It strictly followed the code of earlier governments not to tamper with tax rates during the latter part of a presidential term. The proposed tax outline would go into effect from 2017. A presidential election will be held at the end of next year. The governing powers cannot risk losing favor with voters.
Korea’s national debt amounted to 37.9 percent of its gross domestic product in 2015. Korea has managed public finances well when compared to other developed economies, with public debt ratios at 113.6 percent for the United States, 230 percent for Japan, and 78.7 percent for Germany. But the pace of growth has been alarming. Spending will only increase in the future. The country faces a myriad of problems — income polarization, a low birth rate, aging population, high youth joblessness and sagging growth. The country badly needs a long-term spending plan.
I urge political parties to stop all the pointless wrangling and sit down for serious discussions on tax policy. The ruling party should start the discussion. The main opposition Minjoo Party of Korea’s tax code outline is a pre-emptive platform for the next presidential campaign. The keystone is higher levies on the rich. It proposes to create a new bracket for those earning more than 500 million won ($447,227) a year and to tax 41 percent of their annual income. It also suggests setting a new top bracket for corporate taxes at 25 percent for companies earning more than 50 billion won a year.
The ruling party needs to respond. It must not side with either the rich or the poor. The opposition is naïve to think that all voters will welcome the proposal for higher taxes on the rich. Taxing the rich more does not make the poorer any richer. The Saenuri Party must pronounce its stance on taxes and initiate a productive debate on the issue.
Walter Mondale, presidential candidate for the Democratic Party in the 1984 U.S. presidential campaign, attacked his Republican rival Ronald Reagan’s tax program, calling his opponent a liar in promising to cut taxes. “Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.” His honesty, however, was interpreted as a pledge to raise taxes and he lost to Reagan in a landslide. Reagan, on the other hand, kept his campaign promise and brought down the tax rates by 30 percent.
His vice president George H. W. Bush, who became the presidential candidate in 1988, bluntly said, “Read my lips — no new taxes” to ride on the popularity of Reaganism. But he failed to keep his promise, and signed a tax hike proposed by the Democratic Party in 1990. He lost a re-election bid.
A policy of consistency and conviction is what wins the hearts of voters. Elections dominated by regionalism and ideological contests must end. We need an election based on a contest of policies. The first debate should be taxation.
JoongAng Ilbo, August 3, Page 28
*The author is the head of the business news desk at the JoongAng Ilbo.