Populist tax hikes

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Populist tax hikes

The Ministry of Strategy and Finance’s tax code outline was in line with expectations. The keystone was higher levies on the biggest individual income-earners and companies as pushed by the ruling Democratic Party. The Moon Jae-in administration claimed that the tax revision outline is designed to increase jobs and improve income redistribution. The main opposition Liberty Korea Party criticized it as a half-baked and impromptu tax hike to serve a political purpose. The bill is likely to face headwind at the National Assembly.

Despite much noise about the controversial move, a hike on the highest-income bracket individuals and corporations would bring in just 5.5 trillion won ($4.9 billion) in extra tax revenue. It can hardly cover the 178 trillion won needed to embody the government’s ambitious 100-point state agenda for the next five years.

It would be even less effective than the tax revision in 2013 by the former Park Geun-hye administration. The tax code revisions in the following year brought in additional revenue of 9.2 trillion won even without tax increases. The rich tax pushed by the Moon administration would be of less help than the tax revision in previous government.

A tax hike requires public support and restructuring in tax expenditures. Taxpayers will become willing to pay more when they are ensured that their contribution is not wasted by poor planning and spending. Taxpayers cannot be happy about their higher burden going to subsidizing employers for the spike in minimum wage payment or helping the government to expand public-sector jobs.

If hikes are necessary to ease inequalities, the middle class also must be asked to shoulder the extra burden. Tax exemptions for low-income earners also must be lessened. But President Moon maintains that he won’t raise any taxes for the working and middle class as well as mid- and small-sized enterprises during his five-year term.

The president will face resistance if the extra burden is entirely levied on wealthy companies and individuals. The ruling party and government have chosen their safest path ahead of next year’s local elections. But there is no easy way in taxation.

JoongAng Ilbo, Aug. 3, Page 30
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