[Income Tax Debate] Seong Myeongjae, Former President of the Korean Association of Public Finance, "Progressivity of Earned Income Tax is Distorted... Exemption Threshold Should Be Lowered"

Sung Myung-jae, Professor, Department of Economics, Hongik University

[Asia Economy Sejong=Reporter Son Seon-hee] "The excessive progressivity of the current earned income tax is truly abnormal. It stems from the misconception that progressivity directly leads to income redistribution, but even if it is a politically difficult choice, a ‘desirable reform’ should be made in the direction of lowering progressivity."

Professor Sung Myung-jae of the Department of Economics at Hongik University, who served as the president of the Korean Association of Public Finance (photo), said this in an interview with Asia Economy on the 14th regarding the recent issues surrounding the reform of the earned income tax. He is a tax expert who also participates as a member of the Ministry of Strategy and Finance’s Tax Development Deliberation Committee.

The current earned income tax system has the top approximately 11% of earners paying 76% of the determined tax amount. The ‘abnormal structure’ pointed out by Professor Sung refers to this excessive progressivity. He noted, "A higher progressivity does not necessarily mean a greater income redistribution effect," and added, "If progressivity becomes excessively strong, the redistribution effect actually decreases." He previously published a paper (2016) analyzing the correlation between income tax progressivity and income redistribution effects. According to this study, to enhance the income redistribution effect, an ‘appropriate level of progressivity’ must be maintained, and compared to this, the current system is still at an excessive level."

So, what kind of reform does the ‘desirable direction’ he mentioned entail? Professor Sung said, "The proportion of tax-exempt earners should be reduced, and the so-called ‘blanket deductions’ on earned income tax should be cut." He particularly cited the ‘credit card deduction’ as a representative example. He criticized, "It was a system created as a workaround in the past to produce business income tax data, but it lacks economic justification and is a policy that does not exist anywhere else in the world."

However, Professor Sung also agreed that, realistically and politically, drastic deduction cuts are not easy. Nevertheless, he emphasized, "Popular policies and desirable policies do not always coincide, and income tax is a representative case where these two conflict," adding, "The ‘blanket deductions’ on earned income should be gradually eliminated, and the issue of reverse discrimination against business income, which receives almost no deduction benefits, should also be addressed."

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