Government Says It will guarantee the Income of the Poor

Controversies are increasing concerning the Earned Income Tax Credit (EITC) system, whose establishment is being hastened by the government and the ruling party due to its targeted introduction in 2007. Even though the EITC promises to help low-income bracket groups through income support, basic arrangements such as creating financial provisions for the system and constructing an income assessment system remain vague and undeveloped.

Chairman Kim Jong-ryul of the Uri Party’s Special Committee on People’s Livelihood, which was established on March 21, said, “If discussions among parties go well, legislation will be possible during this year and introduction [of the EITC] will be possible by 2007.”

In the presence of Third Policy Coordinating Committee Chairman Lee Gye-ahn and government officers, Uri Party’s Special Committee on People’s Livelihood held a symposium on the afternoon of March 21 at the National Assembly Library and discussed a way to introduce the EITC system.

The Effect of EITC –

This is a system enforced in developed countries such as the U.S. and New Zealand. The system mainly supports people with incomes below a certain level. For example, this system may support the ‘second lowest income group’ or low-income laborers by providing the income amount needed to raise the income of individuals within the lower income bracket to a certain level.

Though the minimum living expense system provides a larger amount of support to households with lesser incomes, in this system, up to a certain level, the more you earn the larger the amount of support. In short, it is a system to supplement the National Basic Livelihood Security Act, which suspends all support if you are no longer among the lowest income group.

Rep. Park Young-seon of the Uri Party said, “It is a positive system because we can economically provide not only social security but a means to motivate laborers.”

The Problem of Financial Provisions –

The Uri Party estimates the number of beneficiaries at 1.32 million and the amount of capital needed at 3 trillion won. It is expected that the necessary funding for the system can be obtained by reducing tax deductions and by adjusting the rate of reductions.

In the end, the necessary capital will also be raised by an “additional tax payment from the high-income bracket group.” Accordingly, some leaders are considering lowering the rate of tax reduction from 13.5 percent of the Gross Domestic Production to 10 percent, the level of developed countries, by decreasing the year-end adjusting or income deductions of the high-income bracket group.

Choe Yong-sun, the president of the Korea Institute of Public Finance (KIPF), indicated, “If this system is introduced, though the laborers of the low-income bracket group may be motivated to work, due to heavy taxes, the laborers in the high-income bracket group will be relatively discouraged.”

Need to Construct Income Assessment Systems –

Prior to the introduction of the system, the exact income of the beneficiaries and their family members need to be publicized. However, the rate of comprehension of Korea’s household income is no higher than 34 percent. Additionally, the number of self-employed people (2 million) is double the number of self-employed people in major developed countries. Despite these challenges, no exact system for income reports has yet been established.

A countermeasure also needs to be arranged to control excessively requested amounts. According to KIPF, in the U.S., where the EITC has been implemented 30 years ago, among the 31.3 billion dollars of support requested by the lower-income bracket group in 1999, 35.5 percent, or 11.1 billion dollars, were excessively requested amounts.

Kim Young-geun, the income tax manager of the Nation Tax Service, said, “Workers with an assessable definite income such as part-time construction workers or low-income temporary or part-time workers will be the primary introduction group.”

In-Jik Cho cij1999@donga.com