‘Tax hike for rich’ debate accelerates

The debate on tax hikes for the rich has heated up. Following suggestions by the governing Democratic Party of Korea (DPK) and some ministers that a tax raise was inevitable to implement President Moon Jae-in’s economic policies, Cheong Wa Dae also acknowledged the need to discuss the issue.

After presiding over a national fiscal strategy meeting Thursday and Friday, President Moon vowed to raise taxes on conglomerates and high-income earners.

“Participants in the meeting came up with specific ways on income and corporate taxes. I think we have set the direction,” Moon said, citing the rate hikes mentioned during the two-day meeting.

“If we decide to raise taxes, the targets are just very big companies and very high-income earners. Ordinary people and small firms will not be subject to it. This principle will con- tinue throughout my term over the next five years.”

Presidential spokesman Park Soo-hyun said that the government will reveal details next week.

“The tax hike will be discussed at an economy related ministers meeting and a Cabinet meeting next week, in line with talks over a tax code revision. The stance of Cheong Wa Dae on the issue will be determined after the process,” he said.

At the meeting, DPK Chairwoman Choo Mi-ae suggested raising taxes on high income earners and conglomerates.

Rep. Woo Won-sik, the floor leader of the ruling party, also indicated Friday that the DPK would push for raising the taxes paid by big companies and high-income earners.

“What Choo has said about tax hikes is what we have been discussing within the party,” he said.

Currently, businesses earning more than 20 billion won are subject to the highest corporate tax rate of 22 percent. The rate was cut to 22 percent from 25 percent by the former Lee Myung-bak administration. Choo suggested levying a 25 percent tax rate on corporate income exceeding 200 billion won.

Analysts expect that less than 100 businesses will be subject to this highest tax rate.

“Without a corporate tax hike, it may be difficult to meet revenue targets, no matter how much we decrease tax exemptions or pull up the effective rate,” Choo said.

She added that the corporate tax revision will increase government revenue by 2.93 trillion won.

Choo also suggested raising tax rate on people earning more than 500 million won annually to 42 percent from 40 percent. Around 20,000 are in this highest income bracket.

Some ministers are also openly supporting a tax hike.

Minister of the Interior Kim Boo-kyum said that the government should be more honest about the need for an income tax hike, instead of just mentioning fiscal reform or tackling the problem of the underground economy.

Such comments come from the determination that a hike is inevitable.

Kim Jin-pyo, head of the State Affairs Planning Advisory Committee, the de facto transition team of President Moon, said in a radio interview that the tax burden ratio, which hovered around 21 percent during the former Roh Moo-hyun administration, currently stands at 18 percent.

“It is essential to raise taxes step by step to make up for economic and social loopholes and allow the government to function properly.”

The administration recently presented a 100-task roadmap, which would cost 178 trillion won over the next five years.

While it said that most of the plan can be financed through fiscal reform, it avoided mentioning the need for a tax hike.

It thus drew criticism that it was little different from the former Park Geun-hye administration which promised “welfare without a tax hike.”

The finance ministry plans to announce a revision plan for next year in August, including possible tax hikes.

“We have been gathering expert opinions regarding taxes, to make comprehensive analysis. It hasn’t been decided yet whether they will be raised, or how much this will be if implemented,” a ministry official said.

President Moon had pledged to raise taxes during the election campaign, but he toned this down as the election day drew near, apparently so as not to lose votes.

The administration has concerns over any tax increase raise as it faces local elections next year.

During the former Roh Moo-hyun administration, President Moon, who was his closest aide then, witnessed his party fall following the introduction of a comprehensive real estate tax.

The tax hike plan suggested by Rep. Choo aims at minimizing resistance from taxpayers as it only affects a small number of conglomerates and ultra-high income earners.

Cheong Wa Dae said the issue will be discussed at a meeting between the governing party and the government. If agreed upon, a tax hike plan is expected to be included in tax revisions for next year.

The conservative opposition Liberty Korea Party, however, is negative on the issue.

It pointed out that other countries are inducing corporate investment by cutting corporate taxes and says that a tax increase may lead to an exodus of conglomerates.