[Editorial] Candidates Should Focus on Lowering Taxes

Under the current administration, the yearly tax increase rate has exceeded that of payrolls for four straight years. The average payroll has increased by 9.3 percent between 2003 and 2006 while the average tax on employees rose by a whopping 13.7 percent. The Tax Base Bracket (TBB) system was supposed to change the rate if the national average income of employees increased. The government, however, did not adjust the TBB, designed in 1996, for 11 years, leading to tax rate increases that outpaced salary increases over the same period.

A higher income tax rate discourages employees and leads to a greater dissatisfaction with the government. Most countries these days are conducting tax reforms that broaden their tax bases while cutting tax rates. But Korea is moving in the opposite direction.

The real estate tax is a penalty rather than taxation. The amount of capital gains taxes has tripled compared with last year, and comprehensive real estate taxes have increased by 65 percent. Single homeowners who have to pay comprehensive taxes are suffering as a result. These so-called “tax bombs” have made real estate transactions almost disappear.

The pursuit of “big government” by the Roh administration, which goes against the global trend, has brought about an increase in taxes. The U.K, France, Germany and Japan in particular, from Prime Ministers Koizumi and Abe to Fukuda, have been pursuing a small government. That is because a large government leads to the creation of numerous regulations intended to secure government official job security driving out private investment by expanding government expenditures.

In the run-up to the presidential election, presidential candidates are competing regarding promises of reducing taxes. Even the presidential candidate of the ruling party, Chung Dong-young, went as far to say, “ Under my administration, there will be no tax bombs.” However, he did not mention how to reduce government spending except saying, “A 10 percent reduction in taxes.” Lee Myung-bak, the Grand National Party candidate, and Independent Lee Hoi-chang, who have promised tax reductions, are no exception to this either. In order to fund their rosy promises, the government will have to collect more taxes.

Increased government spending cannot lead to tax reductions. A drastic decrease in spending should follow. Candidates should come up with a blueprint that can manage the government budget while reducing taxes.