Misguided Policy to Help the Poor

The ruling Grand National Party announced Wednesday morning the cancellation of its plan to lower corporate and income tax rates, only to reverse its position in the afternoon. Party chairman Ahn Sang-soo said the party’s supreme council intended to discuss the nixing of the tax cuts proposed by council member Chung Doo-un. The about face, however, was caused by the party’s impatience and obsession over policies for low-income people.

Pledging to boost the economy through tax cuts, the Lee Myung-bak administration has been pushing for them since early in its term. It lowered the corporate tax rate from 25 percent to 22 percent last year. Though a further cut to 20 percent this year was planned, this was postponed to 2012 due to objections from opposition parties.

The administration also put off a plan for tax cuts for high income earners until 2012. Chung proposed to cancel these cuts. Though the ruling party intends to block the opposition`s offensive of blasting “tax cuts for the rich,” it looks pathetic due to its inability to explain to the public its plan to reinvigorate corporate investment, boost the economy, and create jobs.

More than anything, calls within the ruling party for canceling the tax cuts are not politics for low-income people despite their slogans. Pledges to give universal welfare or levying more taxes on the rich are mere political tactics to win more votes. Raising taxes on the rich with the intent of helping low-income earners is a policy that can never help the latter join the middle class. A true pro-poor policy is to increase investment and jobs leading to higher incomes and more spending so that those in the low-income brackets can go up the socioeconomic ladder. Unless the middle class recovers, the country’s future is dim.

Businesses are sensitive about taxes, sometimes relocating abroad to avoid higher taxes. Tax policies should be implemented consistently to promote productive activities and prevent social waste. Frequent flip-flopping over taxes cannot help enhance national competitiveness.

The upper echelon of corporate tax rates in Korea is among the highest among emerging Asian economies. Taiwan lowered its corporate tax rate from 25 percent to 17 percent this year, while China cut its rate from 33 percent to 25 percent. If Korea fails to act at a time when its neighboring competitors reduce the burden on business, it will fall behind in global competition and lose jobs for low-income people.