Posted : 2012-02-27 17:24
Updated : 2012-02-27 17:24

Tax overhaul

Election or not, long-term reform is needed

All political groups, including the conservative, pro-business governing party, say Korea needs to enhance public welfare. Nothing strange about that in the run-up to two crucial elections to be held amid widening income inequality. Alarmed by the ``welfare disease” gripping southern Europe, they also agree on the need to raise taxes rather than resorting to fiscal spending. So far, so good.

It is the part on who should pay, and how much, for the additional revenue that rival parties differ sharply from one another. Opposition parties call for collecting more from the 1 percent of the largest companies and richest individuals and spend it for the other 99 percent. The ruling Saenuri Party casts it aside as election populism, saying budget saving and tax reform would produce sufficient revenue to fund the welfare programs. Each side has a point: the nation needs both policies.

If we have to pick one among the three major taxation proposals ― one each from the rightist Saenuri Party, the left-of-center Democratic United Party (DUP) and leftist United Progressive Party (UPP) ― the DUP plan seems most feasible with the other two appearing either too conservative or too radical.

It calls for including those individuals who earn more than 150 million won ($133,000) a year in taxable income in the top group, which should pay 38 percent of income tax. It also wants to increase the top corporate tax rate to 25 percent from the present 22 percent.

The Saenuri Party counters it would kill the middle class, noting that even managerial-level employees of chaebol subsidiaries can belong to this group. The ruling party also opposes the 25-percent corporate tax, citing U.S. President Obama’s recent proposal to cut the corporate tax rate by 7 percentage points, from 35 to 28 percent.

The pro-rich Saenuri Party is apparently making a mistake of simple comparison. Can one really call people with a taxable income of 150 million won ― whose total income is far larger ― middle-class by local standards? In this country, the approximately 280,000 people belong to the top 1 percent and should be taxed as such. The Saenuri Party also need to see even the sharply lowered U.S. corporate tax rate is still higher than Korea’s.

People who oppose increasing tax rates are justifiably concerned about higher corporate taxes destroying business confidence and jobs and heavy income tax driving rich people out of the country, as seen in Sweden decades ago and in France now.

But the problem with these advanced countries was too much welfare, contrary to Korea suffering from too little. If the rival political parties pool their wisdom to solve the most pressing problems while minimizing the adverse effects, there must be ways.

Together the politicians can find how to close numerous loopholes by reducing huge tax deductibles concentrated on large businesses, uncovering the vast underground economy, and ferreting out high-income, tax-dodging professionals.

These are national tasks with or without elections.
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