[Editorial] Wealth tax

Rep. Chung Dong-young, a supreme council member of the main opposition Democratic Party, has added fuel to an escalating debate on welfare reform by calling for wealth taxes to finance the party’s universal welfare scheme.

Chung, who was the DP’s candidate for the 2007 presidential election, proposed on Thursday the introduction a wealth tax and a welfare tax. The wealth tax targets the nation’s richest people whose net worth exceeds 3 billion won. This group accounts for 0.58 percent of the population. It will be also levied on big corporations with assets surpassing 1 trillion won. The annual revenue from this new tax is estimated at 13 trillion won.

The welfare tax will be imposed on households in the top 10 percent of the income ladder to collect another 10 trillion won a year.

Chung’s proposal is a frontal attack on the DP leadership. Last week, the party amended its welfare platform to offer free medical services, free child care and halved college tuition fees, on top of the already implemented free school meals. The party’s leaders pledged they would neither introduce new taxes nor raise existing taxes to finance the welfare package.

Chung said that was simply an impossible feat. He said improved welfare means more taxes. He criticized the DP leaders for not being candid with taxpayers. By attacking the party’s leadership, Chung has provided ammunition to the ruling Grand National Party that denounced the DP’s welfare proposals as “tax bombs.”

But he also slammed the GNP for sticking to its outdated selective welfare policy. Welfare, Chung said, is no longer just for the socially underprivileged and minority groups but for all citizens to ensure that they live a life worthy of human dignity.

In Korea, proposing tax hikes is considered taboo for politicians. The DP leaders’ unrealistic assertion that they can expand welfare services without increasing taxes illustrates this. But Chung chose to ignore this taboo in his bid to seize the high ground in the ongoing welfare debate. Sensing that welfare would emerge as the defining issue of the next presidential election, he decided to take a risk.

With his proposal for new taxes, Chung is aiming to shape the next presidential election into a battle between the conservative bloc advocating tax cuts for the rich and the progressive camp promoting new taxes on the wealthy to finance welfare for all. If the presidential race is simplified this way, there would be little room for candidates who are equivocal about taxing the rich. Chung’s attack on the DP leadership signaled the start of his campaign to frame the welfare debate in this fashion.

However, the odds are stacked against him. In the first place, support for his wealth tax proposal is not broad within the party. Following his call for new taxes, a newly formed DP task force on welfare planning, which included lawmakers critical of the party’s new programs, announced it would toe the party line of implementing them without increasing taxes.

Even if his proposal gets support from the DP, Chung would not be able to lure the public. To see why, he need look no further than the Roh Moo-hyun government for which he served as a minister. Roh lost favor with the public by imposing the comprehensive real estate tax and the capital gains tax on the top 2 percent of the income ladder. The taxes were designed to increase welfare spending but the public simply did not support them.

Furthermore, the logic underlying Chung’s proposal is flawed. If a wealth tax is introduced, the targeted high-income earners and big corporations will pass the increased burden to other members of society in one way or another. Over time, this will more than offset the welfare benefits they receive by taxing the rich and big enterprises. This is how the dynamics of free welfare works.