U.S. President Donald Trump's role model is his Republican predecessor Ronald Reagan. Former President Reagan's two most essential policies were the "Star Wars" program and massive tax cuts, mainly for the rich.
Like Reagan, Trump is building a global missile defense system and has just managed to make the Republican-led Congress pass the largest tax cut bill in 31 years.
Not many countries may be feeling the impact of U.S. policies more acutely than Korea. China has yet to dispel doubts about Korea's intention in deploying a U.S. anti-missile battery, not entirely lifting its economic retaliation against the latter. Seoul is also one of the primary targets of Washington to address the massive U.S. trade deficit.
Conservative critics of the Moon Jae-in administration are now attacking Moon's tax policy by comparing it with Trump's. Citing the U.S. cuts in corporate tax rates from 35 percent to 21 percent, they criticize the Seoul government's increase of the rate for large companies from 22 percent to 25 percent, saying the "reversal" will result in the departure of businesses from this country.
These accusations, however, are incorrect and not based on facts.
First of all, the "effective" corporate tax rate _ after considering various exemptions and deductions _ in Korea will remain at 18 percent, far lower than that in America even after the U.S. tax cuts, and below the OECD average of 21.8 percent. Second, the tax rate has proven to be an insignificant factor for companies in deciding on the locations of their headquarters, compared with business regulations and other factors.
Third, it is well known Reagan's tax cuts for big businesses and wealthy people ended up swelling fiscal deficits to an unprecedented level while failing to create a "trickle-down" effect and widening the wealth gap between the top 1 percent and bottom 99 percent.
By most appearances, President Trump's tax policy will not be a model but a salutary lesson for Korea. Moreover, the U.S. can print the dollar to pass damage from policy failure on to other countries, as seen in the global financial crisis of 2008. Korea can not do this.
Like Reagan, Trump is building a global missile defense system and has just managed to make the Republican-led Congress pass the largest tax cut bill in 31 years.
Not many countries may be feeling the impact of U.S. policies more acutely than Korea. China has yet to dispel doubts about Korea's intention in deploying a U.S. anti-missile battery, not entirely lifting its economic retaliation against the latter. Seoul is also one of the primary targets of Washington to address the massive U.S. trade deficit.
Conservative critics of the Moon Jae-in administration are now attacking Moon's tax policy by comparing it with Trump's. Citing the U.S. cuts in corporate tax rates from 35 percent to 21 percent, they criticize the Seoul government's increase of the rate for large companies from 22 percent to 25 percent, saying the "reversal" will result in the departure of businesses from this country.
These accusations, however, are incorrect and not based on facts.
First of all, the "effective" corporate tax rate _ after considering various exemptions and deductions _ in Korea will remain at 18 percent, far lower than that in America even after the U.S. tax cuts, and below the OECD average of 21.8 percent. Second, the tax rate has proven to be an insignificant factor for companies in deciding on the locations of their headquarters, compared with business regulations and other factors.
Third, it is well known Reagan's tax cuts for big businesses and wealthy people ended up swelling fiscal deficits to an unprecedented level while failing to create a "trickle-down" effect and widening the wealth gap between the top 1 percent and bottom 99 percent.
By most appearances, President Trump's tax policy will not be a model but a salutary lesson for Korea. Moreover, the U.S. can print the dollar to pass damage from policy failure on to other countries, as seen in the global financial crisis of 2008. Korea can not do this.
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