No candidate has ever won the presidential election based on a pledge for a tax hike in Korea. Rep. Chung Dong-young falsely believes he could break the taboo. He proposed a wealth tax in order to support more welfare policies.
Chung, the unsuccessful presidential candidate in 2008, said the wealth tax will affect 270,000 rich individuals and 850,000 high-income earners as well as 36 leading firms.
His proposal targets 0.58 percent of the people with net assets of more than 3 billion won and enterprises having net assets of more than 1 trillion won. His own calculation is that the government will additionally collect 13.3 trillion won as a result of the wealth tax. He also advocates more progressive income tax rates to be applied to the top 10 percent of wage earners. In a nutshell, he expects an additional collection of 20 trillion won in yearly tax revenue.
He contends that the new tax will make society more transparent and bring about social contributions from the rich. This would, he argues, promote social harmony as it accelerates income redistribution.
The Democratic Party has not adopted the wealth tax as the official party line.
His two rivals Sohn Hak-kyu and Chung Sye-kyun argue that free medical services, free school meals and free nursery services will all be feasible without increasing taxes.
A wealth tax may trigger resistance from the affected taxpayers, divide the nation and alienate the rich for its punitive nature. Much of the economy will go underground as the rich might hide assets to avoid getting caught in the tax net.
France, Sweden, Norway, Switzerland and other EU countries have put the tax in place. In 2008, both the United States and the UK hiked income tax for the rich.
The wealth tax is contrary to President Lee Myung-bak’s tax cut for the rich. Theoretically, a wealth tax instills fairness in the tax system, leads to additional government revenue and curbs economic polarization.
It might accelerate capital flight, brain drain, loss of jobs and net loss in tax revenue. This negative fallout took place in France.
It may be arbitrary to valuate illiquid assets. Wealth valuation changes frequently. Elderly citizens are unable to pay taxes without continued asset sale. The government must shoulder high tax management costs.
The proposal is nothing new. Kim Dae-jung first advocated the proposal in his failed presidential campaign in 1987. A decade later he withdrew the pledge ahead of the 1997 presidential campaign.
In the 2008 presidential election, voters turned their backs against the Democratic Party for a tax hike. The Roh Moo-hyun administration backfired in implementing property tax on the homes of which the market value was more than 900 million won.
As time will tell, a proposal for a new wealth tax is political suicide.