[Opinion] Reflections on Taxes

▲Seojun Sik, Professor of Economics, Soongsil University

The issue of where and how taxes are collected has been a core economic policy topic since the era of the Hundred Schools of Thought in ancient China. As Guan Zhong said, if agricultural taxes are too high, agricultural production will decrease, and if housing taxes are too high, people will not build large houses. Tax revenue policies greatly influence not only the economy of the people but also their socio-cultural lives. Even today, more than 80% of government policies are considered to revolve around decisions on where to collect taxes and where to allocate tax expenditures.

The controversy over the comprehensive real estate tax (종부세) is quite heated. Some acquaintances who own multiple homes complain about the notices they received. However, there are also many who strongly oppose resistance to the 종부세. Mr. K, a high-income earner, reportedly paid tens of billions of won in earned income tax over his lifetime. Yet, after paying taxes, covering living expenses, and accommodating rising rent prices, the value of his current assets is said to be less than the total amount of taxes he has paid so far. Despite this, he has lived without major complaints, but he finds the recent media support for tax resistance by 종부세 payers somewhat disappointing. South Korea’s earned income tax has one of the highest top marginal rates among OECD countries, nearing 50%, which makes his perspective understandable.

Contrary to many people’s misunderstandings, taxes paid by citizens have increased over time regardless of the political philosophy promoted by the government. Even during the Reagan administration in the United States, which represented free-market ideology advocating for a small government, the tax burden on American citizens increased significantly. Similarly, in Korea, tax burdens have risen to meet the demands of entering the ranks of developed countries, regardless of the government’s political philosophy. Going forward, societal demands related to inequality and other issues will only increase, and therefore, no matter which government comes to power, the taxes citizens must bear will inevitably rise.

It is undeniable that after experiencing financial crises and the COVID-19 pandemic, the world has entered an era of big government. The important question is who should bear the increasing tax burden. No government has been unilateral in either cutting all taxes or raising all taxes. Some governments have lowered property taxes or corporate taxes while raising comprehensive income taxes, including earned income tax; others have increased property taxes while enhancing earned income deductions or financial tax exemptions. With various pledges being made for the upcoming presidential election, we should use this opportunity to build a consensus on which groups should bear more taxes and enable citizens to make informed choices that will be reflected in future policies.

The author always advocates for lowering earned income tax. This includes methods such as providing greater income deductions for higher domestic consumption. High-income earners who pay nearly 50% in taxes would actively consume more if given income deductions, benefiting producers accordingly. In this way, reducing earned income tax leads to increased household income, i.e., increased effective demand, thereby enhancing the so-called multiplier effect. Ironically, as a Keynesian, the author strongly supports the ‘Milton Friedman’ approach of minimizing taxes on consumers and producers?the drivers of economic growth?and imposing the shortfall on those who simply hold wealth.

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