Row over tax hike

Get rid of unrealistic pledges before pushing up the burden

President Moon Jae-in signaled during a national fiscal strategy meeting Friday that his administration will seek a tax hike.

Moon’s acknowledgement of the need to increase taxes came just one day after his de facto transition team unveiled a wide range of costly welfare programs during a briefing at Cheong Wa Dae on the five-year roadmap for state affairs.

The State Affairs Planning Advisory Committee said 178 trillion won would be needed by 2022 to implement the 100 tasks on the roadmap. The committee had said that it was possible to carry out the tasks without extra taxes, which many people found hard to believe after the failure of the previous administration’s “welfare without a tax hike” slogan.

The President explained at the strategy meeting that a tax hike would target only the super-rich and big companies, stressing that middle- and low-income earners and smaller companies would not be affected.

During the meeting, ruling Democratic Party of Korea (DPK) Chairwoman Choo Mi-ae suggested levying a 25 percent tax rate from the current 22 percent on annual corporate earnings exceeding 200 billion won. She also proposed raising the tax rate for people earning more than 500 million won annually from 40 percent to 42 percent, which would affect about 20,000 in the highest income bracket. Minister of the Interior Kim Boo-kyum said the government should be more honest about the need to increase taxes.

But even the extra taxes from the super-rich will not be enough to cover the rising costs needed to provide more welfare and to boost the economy.

Welfare spending is already approaching 10 percent of Korea’s GDP and the government will find it harder to manage the costs. Therefore, taxing only the rich is not a sustainable means to finance Moon’s welfare pledges. Such a rash plan will surely face resistance from those in the highest income bracket and the nation’s key businesses.

President Moon should remember that increasing taxes should be a last resort, after the government has done all it can to reduce wasteful spending and expanded revenue sources.

It is premature for the President to raise the need for a tax hike before properly sorting out election pledges that will increase the burden on taxpayers. No taxpayer will be convinced of the need to raise taxes under an administration that has vowed to make some wasteful changes, such as expanding the public services sector.

It is also untimely to talk about a tax rise before fully weighing its negative side effects on the economy. It is a global trend to cut corporate taxes, so raising them will make Korea a worse place to do business than its global rivals and put a strain on local companies.

Targeting only a specific portion of taxpayers for a tax hike is unfair because almost 50 percent of salaried workers do not pay income taxes. A report found that the ratio of people exempt from paying income taxes is much higher than in most advanced countries. The government must implement measures to promote tax equality by mending loopholes first.