Fattening the Rich

Tax Cuts Have No Trickledown Effect to Help Poor

President Lee Myung-bak's tax cut policy is again under criticism as it has only benefited the rich. According to official statistics, Koreans' average tax burdens decreased 4.4 percent last year from 2008. The figure, however, is treacherous because only the top 20 percent in income enjoyed the 10.4-percent drop in tax payment, while the remaining 80 percent were forced to pay more. It proved that the poorer people become, the bigger their tax increase rates are. The median-income class saw their tax grow up to 5.7 percent, while the bottom 20 percent paid as high as 17.5 percent more tax.

Lee's massive tax cuts have failed to create the so-called trickledown effect for the lower-income brackets. Lee and others advocating lower tax rates have often argued for the desired effect to deflect attacks from left-leaning critics that tax cuts would inevitably bring benefits only to a small number of family-controlled conglomerates, their owners and wealthy individuals. Their logic is no longer tenable as the benefits of tax cuts have not trickled down to the poor and underprivileged.

In fact, tax cuts have not encouraged high-income earners to spend more, boost domestic demand and contribute to an economic recovery. The average income of the bottom 20 percent bracket fell 9 percent in 2009, while that of the top 20 percent edged down just 2.1 percent. But the rich class curtailed their spending 6.9 percent, compared with a 7.5-percent reduction by the poor class. This indicated that the former tightened their purse much more than the latter.

In addition, a large number of businesses have been reluctant to expand their facility investment due to lingering uncertainties in the wake of the reverberating global economic crisis. As a result, they have not met public expectations about job creation. Against this backdrop, tax cuts have only the limited effect of helping large companies store more cash reserves and enabling wealthy individuals to fatten their own pockets.

Now, it would be better to put an end to an unproductive debate over tax cuts. And policymakers should reflect on the misguided policy of speeding up the economy through tax reduction. The policy has only led to a wider rich-poor gap as well as an upsurge in the budget deficit and the state debt. We hope that the government will scrap its additional tax cut plan for the rich. The Lee administration should no longer shout an empty slogan of helping low-income people. It's time to act to create more jobs and bring real benefits to the poor.