Tax Cut Debate

Government Should Not Hesitate to Rectify Wrong Policy

It was meaningful enough that the governing Grand National Party (GNP) suggested the Lee administration reconsider tax cuts for wealthy people. Even more significant was that the government's top financial policymaker showed a positive response to it.

At a National Assembly session early this week, Rep. Kim Song-sik asked whether the government has any intention of ``withholding income and corporate tax cuts'' scheduled for next year, to which Minister of Strategy and Finance Yoon Jeung-hyun replied, ``I think your proposal deserves a very positive consideration.''

Their remarks seemed to reflect that the governing camp has finally ― if belatedly ― realized the problems of providing big tax cuts for the rich and filling up a revenue void by collecting more from the poor, which the Nobel laureate economist, Paul Krugman, described as ``comforting the comfortable while afflicting the afflicted,'' in a recent column.

It was all the more regrettable, therefore, that Minister Yoon backed off just a day later, explaining the government would only examine the shelving of tax cuts as a mid-term subject and reiterating the thrust of its tax policy would remain unchanged.

The government's repeated rationale behind taxation which favors the relatively well-to-do classes ― stimulating their investment and consumption to also benefit lesser privileged people ― has hardly been proven, here or abroad. On the other hand, its adverse side effects have manifested themselves all too clearly in the form of the worsening plight of the people living below the poverty line.

Rep. Kim must have the coming by-elections and next year's local elections in mind when he took issue with the tax cuts for the rich. Before it becomes a political issue, however, the ever-widening income gap is a far more urgent economic and social issue. In the worst-case scenario, the Lee Myung-bak administration could go down in history as the first government that emptied state coffers while perpetuating economic polarization ― unless it rectifies its tax policy.

Two things deepen our worries about Lee's tax policy. As if all this is not enough, the government is even considering lowering gift and inheritance taxes, and it even tried to underreport the revenue loss from scheduled income and corporate tax cuts from 100 trillion won to 30 trillion won until 2012. It should consider why in most countries, including the United States, Britain, Japan and China, the governments are moving toward heavier taxation on the rich.

At least one thing seems indisputable: The GNP will not be able to ``re-create" power unless it rectifies the rich-get-richer, poor-get-poorer policy ― as early as possible.