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Trump pours ‘rocket fuel’ on economy while Korea pressures conglomerates

Trump pours ‘rocket fuel’ on economy while Korea pressures conglomerates

Posted December. 22, 2017 08:51,   

Updated December. 22, 2017 09:10


U.S. Congress has passed a tax bill calling for a sweeping 1.5 trillion-dollar tax cut over the next 10 years. On Wednesday, local time, the Senate passed a bill calling for lowering the 35 percent corporate tax rate to 21 percent and reducing the rate of repatriation tax levied on dividends of U.S. corporations’ overseas subsidiaries from 35 percent to 12 to 14.5 percent. After the first massive tax cut in 31 years, U.S. President Donald Trump said his tax cuts will “pour rocket fuel” into the U.S. economy, saying, “This is truly a case where the results will speak for themselves, starting very soon. Jobs, Jobs, Jobs!”

Although he has become a public enemy of the world economy since his inauguration because of his economic isolationism, he has shown that his administration puts the top priority on improving the business conditions for U.S. corporations. AT&T and Comcast announced that they would pay 1,000 dollar bonuses to their entire employees, following the tax cut in the U.S. business community’s response to the pro-business act by the U.S. administration and Congress. Fifth Third Bancorp and Wells Fargo have also laid out plans to increase hourly minimum wages. Even though the U.S. government did no put pressures on corporations to increase wages, the trick-down effect of improved business conditions resulting in increases in workers’ shares is still valid.

As corporate decision-makings go through complex processes of taking various factors, including business outlooks and financial conditions, one cannot conclusively say that a corporate tax cut will result in increased investment and job creations. However, it is clear that tax is a key factor in making investment decisions. According to the Korea Development Institute, a 1 percentage point drop in the corporate tax rate leads to a 0.2 percentage point increase in investment.

The U.S. tax cut has prompted European countries such as Britain and France to cut their own corporation taxes and a worldwide competition for attracting businesses. South Korea is the only country seeking to increase its corporate tax rate and putting pressures on large corporations by inspecting 57 of their foundations and reducing tax benefits for corporate research and development expenditures. On Thursday, the Korea Fair Trade Commission decided that Samsung SDI did not properly calculate the number of its shares in Samsung C&T Corporation at the time of the latter’s merger with its affiliate Cheil Industries Inc. in 2015, ordering Samsung SDI to sell additional 4.04 million shares. Although the decision followed a court ruling in August on a case involving the “Choi Sun-sil scandal,” the Korean government’s reversal of its decision based on just the first trial has increased management uncertainties.

When Finance Minister Kim Dong-yeon met the top management of the LG Group last week, he said that big businesses are an axis of innovative economic growth. However, businesses remain anxious. As Korea has already decided to increase the corporate tax rate, it should prepare other measures to encourage corporate investment. In addition to implementing deregulations that would actually reduce corporate burdens, the country should guarantee entrepreneurs’ creativity and make a sufficient compensation system for them. Korean companies may be building plants in the United States under U.S. pressures now, but the day might come when they voluntarily leave this country.