[Editorial] Prerequisites for tax hike

By Korea Herald

Government should eliminate waste and pork barrel policies before raising taxes

  • Published : Jul 23, 2017 - 17:47
  • Updated : Jul 23, 2017 - 17:47
A debate on tax increases has been ignited.

The government and ruling party raised the necessity of a tax hike.

It came just a day after the unveiling of 100 policy tasks President Moon Jae-in will endeavor to do during his presidency.

The team that listed them said they would be implemented without a tax raise.

Moon said Friday, “The time has come to decide on the issue of a tax hike. Even if we raise taxes, it will affect only the highest income earners and the largest companies.”

Choo Mi-ae, chairwoman of the ruling Democratic Party of Korea, suggested the corporate income tax rate be raised 3 percentage points for companies that earn more than 200 billion won ($179 million) and the earned income tax rate by 2 percentage points for individuals who earn more than 500 million won a year.

The Moon administration was not candid when it said taxes would not be raised. Whether the required funding of 178 trillion won is a reasonable estimate is also questionable.

Before raising taxes, efforts should be made to cut back on nonessential expenditures and eliminate tax waste. A tax hike should be a last resort.

What is the current government doing to save taxpayers’ money? Its policy to raise the minimum wage sharply has led to a promise to subsidize the minimum wage with 3 trillion won for small businesses next year. It is shameless to impose more taxes while subsidizing private-sector wages.

If the construction of two nuclear power plants is indefinitely suspended under a policy to wean the nation from nuclear power generation, 2.6 trillion won in tax will disappear in sunk costs.

There will be numerous cases of tax waste across the country.

Moon emphasized that there will be no tax increase for the middle class and small and medium-sized enterprises.

This insinuates that he dismisses the expected backlash from tax hikes on a small portion of the society as negligible. The government must not play Robin Hood. The view that it is no big deal to collect more in taxes from the rich as long as taxes will not be raised for the middle class smacks of populism. If taxes on the rich fall short, everyone will have to chip in. More taxes will have to be collected first from large companies and the rich, then from SMEs and the middle class, and lastly from the poor. This will happen when the economic pie becomes smaller due to the tax burden.

Tax revenues should be increased by growing the economy rather than by raising tax rates.

It is better, too, for jobs to be created through corporate investment boosted by deregulation, than by hiring more civil servants.

Public servants tend to regulate and intervene in the private sector.

To increase their number and collect more taxes from large companies may dampen investment and drive companies out of the country.

Last year alone, companies invested $24.6 billion abroad. If the money had been invested at home, a lot of jobs would have been created and much tax collected.

The US, Germany, France and Japan have lowered their corporate tax rates, though they are still higher than Korea’s.

If the countries believed tax hikes on the rich could solve problems, why haven’t they raised taxes? Tax increases are an easy option with negative side effects.

Before discussing tax hikes, unrealistic or infeasible policies should be revised or scrapped.

Tax waste should be eliminated, whether taxes are raised or not.

It is unfair to raise taxes on the rich alone, as 46.5 percent of income earners have not paid a penny in income tax. They should pay. Many religious figures refuse to pay income taxes. This needs to be reviewed.

Raising taxes without getting rid of pork barrel policies and tax waste will bruise the national economy.