Ruling and Opposition Parties Enter Budget Battle, Clash Expected at Debate... "Maintain Current Corporate Tax" vs "22% Cut Justified"

'Government Tax Reform Proposal Review' Forum Held
Ruling and Opposition Parties and Government Gather to Discuss Budget Proposal
Differences Between Ruling and Opposition on Corporate Tax and Comprehensive Real Estate Tax Reforms

On the 7th, the '2022 Tax Law Amendment Discussion' was held in the 1st Small Conference Room of the National Assembly Members' Office Building.
[Photo by Park Joon-yi]

[Asia Economy Reporter Park Jun-yi] As the National Assembly has entered the budget review process, the ruling and opposition parties have revealed sharp disagreements over the government's tax reform plan, signaling a strong clash ahead. When the opposition criticized the corporate tax cuts as a "tax cut for the rich," the ruling party emphasized the necessity of the government proposal, saying that "normalization of the abnormal" is needed.

Academia and Labor Groups: "Corporate Tax Cuts Concentrate Tax Benefits on High-Income Earners"

On the 7th, a forum titled "Can Corporate Tax Cuts Become a Cornerstone to Overcome the Economic Crisis?" was held in Conference Room 8 of the National Assembly Members' Office Building.
[Photo by Park Joon-yi]

On the 7th, two forums related to the government's tax reform plan were held at the National Assembly Members' Office Building. Various stakeholders, including ruling and opposition lawmakers, the Ministry of Economy and Finance, the National Assembly Budget Office, and professors from various fields, gathered to conduct in-depth discussions on the budget.

In the morning, in the 8th Conference Room, a forum titled "Evaluation and Solutions for the 2022 Tax Reform Plan - Can Corporate Tax Cuts Be the Cornerstone to Overcome the Economic Crisis?" was co-hosted by the People's Solidarity for Participatory Democracy and the Democratic Party of Korea. Economic experts and labor representatives participating in the discussion pointed out that the government's tax reform plan, including corporate tax cuts, follows a "tax cut for the rich" policy and stressed the need for improvements.

Professor Kang Byung-gu of Inha University’s Department of Economics, who presented at the forum, said, "Our society faces structural problems, and stagflation?where inflation and economic recession occur simultaneously?is a concern following polarization and inequality." He added, "However, the Yoon Seok-yeol administration is pursuing tax cuts for the rich under the policy theme of 'fiscal normalization and securing fiscal sustainability supported by private-led growth.'"

Professor Kang argued that lowering corporate taxes does not lead to increased corporate investment or employment. He explained that especially when the investment and employment effects of corporate tax cuts are weak, reducing the top corporate tax rate ultimately concentrates tax benefits on high-income earners. He said, "When the effective corporate tax rate decreases by 1 percentage point, the retained earnings ratio increased by 0.017 percentage points." He added, "As the effective corporate tax rate decreases, part of the increased retained earnings is invested, resulting in increased corporate value and stock prices, which can increase shareholders' dividend income and capital gains."

He also emphasized that "when the effective corporate tax rate falls by 1 percentage point, the labor income share increases by only 0.0056 percentage points," indicating that the trickle-down effect from corporate tax cuts does not work. He noted, "Corporate tax deductions and exemptions are concentrated on large corporations, and the effective tax rate for large corporations is lower than that of smaller corporate groups."

Lee Jeong-hee, Policy Director of the Korean Confederation of Trade Unions, who also participated as a presenter, said, "During the Lee Myung-bak administration, corporate tax cuts amounted to 26.7 trillion won over four years starting in 2008, but the increase in corporate investment during the same period was more than 10 trillion won less than the previous four years." She added, "There is no evidence that corporate tax cuts contribute to increased investment and economic growth, and the increase in dividend income only enriches a very small number of top shareholders such as chaebol families."

There were also calls for tax increases rather than tax cuts. Lee said, "Tax cuts are not desirable in an economic crisis," and added, "The United States is also pursuing resource mobilization through corporate tax increases on large corporations, including the introduction of a minimum corporate tax rate (15%) under the Inflation Reduction Act (IRA) in August."

Ruling Party: "Worsening Unfairness" Opposition: "Need to Restore Economic Efficiency"

On the 7th, the '2022 Tax Law Amendment Discussion' was held in the 1st Small Conference Room of the National Assembly Members' Office Building.
[Photo by Park Joon-yi]

In the afternoon, the '2022 Tax Law Amendment Forum' hosted by the National Assembly Budget Office was attended by Ko Kwang-hyo, Director of the Tax Policy Bureau at the Ministry of Economy and Finance; Park Dae-chul, Chairman of the National Assembly Planning and Finance Committee; ranking members from both ruling and opposition parties on the Planning and Finance Committee; and Cho Ui-seop, Director of the National Assembly Budget Office, among other government, ruling, and opposition officials.

Ko, representing the government, emphasized that the current tax reform plan aims to ▲boost economic vitality ▲stabilize people's livelihoods ▲expand tax infrastructure and create a taxpayer-friendly environment, explaining, "In a situation where global competition is fiercer than ever, we must attract and expand foreign investment through corporate tax rate cuts."

The two parties showed opposing views on this. Shin Dong-geun, the opposition party's ranking member on the Planning and Finance Committee, said about the tax reform plan overall, "It is difficult to see it as a tax policy to overcome inflation and economic recession; it appears to be a tailored tax cut policy for large corporations, multi-homeowners, and high-income earners." He criticized, "The Lee Myung-bak administration's large corporation-centered policy deepened unfairness. This tax reform plan does not align with the Yoon administration's proclaimed 'fairness and common sense.'"

On the other hand, Ryu Seong-geol, the ruling party's ranking member on the Planning and Finance Committee, countered, "Over the past five years, many aspects of the tax law amendments have reduced economic efficiency," adding, "There is a need to reform laws that do not conform to global standards."

Regarding corporate tax cuts, the opposition party advocated maintaining the current system. Shin said, "Lowering the top corporate tax rate is nothing more than a massive tax cut for a small number of about 100 large corporations," and stated, "It is desirable to maintain Article 55 (tax rates) of the current Corporate Tax Act while expanding the application scope of the special tax rate (10%) for medium-sized and small enterprises (tax base under 500 million won)." He argued that even if the scope is expanded, it should target certain companies such as semiconductor and battery firms expected to be affected by the U.S. IRA law.

However, Ryu said, "Lowering the top tax rate to 22% is reasonable," explaining, "OECD countries are competitively lowering corporate tax rates." He added, "Empirical studies show that corporate tax cuts have effects on increasing investment and employment," and said, "It is desirable for South Korea to lower the rates raised by the previous administration back to previous levels."

Shin also expressed opposition to expanding the scope of inheritance tax exemptions for family businesses. He said, "The proposal in this tax law amendment is too lenient and the pace of increase is too fast, which greatly expands wealth inheritance," explaining, "According to the Korea Federation of Medium-sized Enterprises' '2020 Medium-sized Enterprise Survey,' 80.8% of medium-sized enterprises responded that they have no plans for business succession." In response, Ryu argued, "Business succession is for expanding and maintaining investment and jobs for the middle and working classes rather than wealth inheritance," adding, "Competitive small and medium-sized enterprises face business discontinuity due to inheritance tax burdens, leading to job losses and social costs from the loss of business know-how, which are much greater."

Regarding the comprehensive real estate tax law reform, Shin said, "Since the tax base for the comprehensive real estate tax will be significantly lowered, it will neutralize the tax," and urged, "As market prices are stabilizing and a decline in official property prices is expected, related regulations must be strictly enacted." Meanwhile, Ryu emphasized, "This aims to normalize the comprehensive real estate tax system, which has caused excessive taxpayer burdens and tax inequity, in accordance with tax principles."

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