[Editorial] No need for more tax

Despite the government’s opposition, a plan to collect more taxes from the very wealthy to increase welfare spending is gaining traction among lawmakers of the ruling Grand National Party.

In an about-face, GNP leader Hong Joon-pyo expressed on Tuesday his support for the scheme, which is being promoted by Rep. Chung Doo-un, head of the Youido Institute, the party’s think tank.

Hong stressed the need to impose a higher income tax on the super-rich. Under the current tax system, he said, people earning 10 billion won a year pay the same rate of tax as those who earn 88 million won, the threshold for the top income tax rate of 35 percent.

When the present system was adopted 28 years ago, he noted, only about 10,000 people were in the top income bracket. The figure has soared to 280,000, indicating the need to create a new income bracket for the top earners.

Hong called for “noblesse oblige” on the part of the privileged, saying that it was simply not right for them to pay the same amount of tax as ordinary people. His remarks encouraged promoters of the so-called “Buffett tax” scheme.

Earlier this month, Rep. Chung urged the GNP leadership to embrace the plan as opposition parties are sure to attack the ruling party as a party for the rich in the run-up to the April general elections. To many GNP lawmakers, the party’s pro-rich image is an anathema. They blame the party’s defeats in a recent string of by-elections and local elections on its image problem.

On Sunday, Rep. Kim Sung-sik, a reform-minded GNP lawmaker, proposed a new income bracket for people earning more than 150 million won or 200 million won a year and to apply a tax rate of 38-40 percent.

This proposal is similar to the one pushed by Rep. Lee Jung-hee, leader of the Democratic Labor Party. Lee submitted a bill in September last year, which called for a 40 percent tax on people earning more than 120 million won per year.

Last week, the People’s Solidarity for Participatory Democracy, a liberal civic group, presented a proposal to collect 10 trillion won a year by raising corporate as well as personal income tax rates.

The scheme, supported by Rep. Chung Dong-young of the main opposition Democratic Party, calls for a 42 percent tax rate for people with an annual income of 120 million won or more.

The plan also proposes a 25 percent tax rate on companies with annual profits of between 10 billion won and 100 billion won and 27 percent for companies earning more than 100 billion won. Currently, the top corporate tax rate is set at 22 percent, which is applied to companies with taxable profits exceeding 200 million won.

The government is adamantly opposed to any plan to hike personal or corporate income taxes. Minister of Strategy and Finance Bahk Jae-wan said taxing the wealthy was a stop-gap measure embraced by countries floundering in a fiscal morass. He stressed that Korea had no need to introduce a higher rate of tax because its fiscal deficit was about 1 percent of GDP.

We share the government’s view. At a time when many advanced countries are in fiscal crisis due to excessive welfare spending, it would be foolish of us to collect more taxes to increase welfare expenditure. Due to population aging, Korea’s welfare spending is bound to increase over time to the levels of advanced countries now in trouble.

Furthermore, such a tax has downsides ― it would discourage investment and saving, thereby impeding economic growth. As Korea has entered a low-growth phase, it should resist a policy that hinders growth by all means.