[Tax Story] Taxes Are Not a Universal Key

Professor Ahn Chang-nam, Department of Economics and Taxation, Kangnam University

Various tax policies to curb the rapid rise in housing prices are being announced almost daily. For ordinary people who own just one house, it feels as chaotic as if a war has broken out. As the government becomes impatient, ordinary citizens also feel anxious. While the government's stance to stabilize housing prices is understandable, relying solely on taxes to control housing prices is unrealistic. The rapid rise in housing prices is the result of a complex interplay of supply and demand mismatches and idle funds in the market seeking investment opportunities. In difficult times, we should return to principles. In that vein, I offer a few suggestions.

First, tax interference in basic necessities such as clothing, food, and housing should be minimized. You cannot heavily tax people just because they dress well or eat well. The same applies to housing. Tax interference on one household owning one home should be minimized. A truly democratic welfare state is based on not taxing but supporting citizens' basic needs for clothing, food, and housing so they can live healthy lives. Therefore, capital gains tax and comprehensive real estate tax on one household owning one home need to be reduced from current levels.

Second, aggressive tax policies targeting multi-homeowners are acceptable. This is because there is a risk of harming a healthy social community, and it is unreasonable for certain individuals (speculative investors) to monopolize housing in areas like Gangnam in Seoul, where quality jobs are concentrated. Those who benefit should bear the burden. From this perspective, policies to raise holding taxes (property tax and comprehensive real estate tax) are necessary. However, if holding taxes are increased, transaction taxes (acquisition tax and capital gains tax) should be eased. This can induce a supply effect. The higher the capital gains tax burden, the more the market experiences a lock-up phenomenon where properties are not put up for sale, leading to soaring housing prices. In fact, capital gains tax is paid upon transfer, so if owners do not sell, they do not have to pay taxes. Moreover, there is already a trend of preferring to gift properties rather than pay capital gains tax. Therefore, strengthening transaction taxes has minimal effect.

Third, the limitations of tax policy must be acknowledged. No matter how much the government raises tax rates, desk-bound salaried officials cannot outsmart speculators who "want more the more they have." They are professionals in their field. Therefore, if the government truly wants to curb speculation, it is necessary to introduce a 'housing transaction permit system' in specific areas. Those who want to purchase a home other than their one household one home must dispose of their previous home before buying a new one. Tax laws exist to collect taxes, not to punish multi-homeowners, so this is even more important. Creating dozens of anti-speculation measures undermines legal stability and predictability of tax burdens. The government should heed the legal maxim, "Saying something several times is enough twice."

Fourth, taxes should be managed by experts. Taxation is not an area anyone can handle. Tax law encompasses law, economics, public finance, accounting, statistics, and humanities, making it a very complex field. This is why ordinary people find tax law provisions difficult to understand. However, the decision-making power over tax law lies in the political realm that enacts and amends laws (Article 59 of the Constitution: Principle of Taxation by Law). Even Nobel Prize-winning tax theories become useless if the legislature enacts laws in misguided directions. This sometimes leads to things going off track. Non-expert politicians dare not criticize the Korea Disease Control and Prevention Agency’s quarantine activities against COVID-19, fearing embarrassment. Taxation is a specialized field no less than disease control. It should be entrusted to experts. That is the correct answer.

This content was produced with the assistance of AI translation services.