A consensus is neededAfter President Moon Jae-in made it official, a debate on tax hikes is gaining momentum. Following a cabinet meeting last week to devise national strategies to back his expansive programs, Moon announced it was time to choose a path toward raising taxes. He said they would not affect the middle class or small companies.
The tax hikes would be confined to very high-income earners and conglomerates. Moon’s statement came after the ruling Democratic Party’s chairwoman, Choo Mi-ae, proposed tax rates be increased for large companies with revenue exceeding 200 billion won ($180 million) and for individuals with over 500 million won in annual income.
After Moon’s remarks, the Ministry of Strategy and Finance will be forced to reflect his demands in its tax rate review next month. Finance Minister Kim Dong-yeon has been denying tax increases. That tune will have to change after Moon and Choo’s remarks.
After Moon’s demand for a 178 trillion won budget to implement 100 so-called national tasks, a way to finance those ambitious goals must be found. The government needs tens of trillions won to raise the so-called basic income welfare payments, establish allowances for day care and increase soldiers’ monthly pay. The budget required to upgrade contract workers to salaried positions on permanent payrolls is not even included in the 178 trillion won, not to mention the government’s underestimation of the money needed to hire 174,000 new civil servants. Moreover, since the 178 trillion won includes a natural tax increase of 60.5 trillion won, the government can hardly meet its goals if Korean companies flag in a very tough business environment.
The government cannot help but resort to taxing the rich more to meet a growing need for revenue. Given the need to meet increasing welfare demand, the Moon administration needs to raise, albeit reluctantly, our tax burden ratio — the proportion of taxes to gross domestic product — which was lowered to 18 percent under the Lee Myung-bak administration.
But the government should be frank. It must accept the simple truth that more welfare services call for more taxes.
Even if the government chooses a path toward mid-level welfare with moderate tax increases, it needs money. The administration must tap into the underground economy and force individuals to pay their fair share of taxes. The government’s push for more taxes from the wealthy and conglomerates will only lead to national division. A corporate tax hike does not match the international trend. Moon needs to build a national consensus first.
JoongAng Ilbo, July 24, Page 30