[Tax Story] Money, Taxes, and the Crossroads of Donations

"Father, please arrest me. I am a thief." This is a line from the masterpiece "Les Mis?rables" by French author Victor Hugo. The decisive motive behind the transformation of the novel's protagonist, Jean Valjean, seems to be not so much the forgiveness of Bishop Myriel, but the incident where he stole a single coin dropped by the boy Petit Gervais by stepping on it with his foot.

Even after being forgiven for stealing silverware, seeing himself covet even the trivial, hard-earned money of a child, he must have shuddered at his own instincts prevailing over reason. And he cries out, "I am a thief."

After many trials and tribulations, Jean Valjean transforms into a businessman and earns a vast fortune. During the turbulent July Revolution of the 1830s, he donates all his wealth to Cosette, an orphan born in that era, and passes away. Reading the novel again from the perspective of taxation, Jean Valjean, who became a prisoner because of money, embarks on the path of salvation by renouncing money through the act of donation, reaching a state of pure transcendence.

As seen in Inspector Javert, who relentlessly pursues the thief Jean Valjean, it was a police state era. The role of taxes was minimal. The state had no means to rescue Fantine, Cosette’s mother, who lived a miserable life on the streets.

In contrast, the era we live in now is a welfare state beyond the level of a police state. The state must take responsibility for the basic welfare and pursuit of happiness of its citizens. A representative example is the state bearing the costs of diagnosis and treatment for COVID-19. Therefore, the Constitutional Court declares the modern era as a "tax state" (Decision 89HunGa95). For example, suppose a person with an annual income of 10 billion won spends 2 billion won and saves 8 billion won. The current tax system is designed to impose income tax at 42%, value-added tax at 10%, and inheritance tax at 50%. Simply multiplying the rates, the person pays 4.2 billion won in income tax (10 billion won × 42%), 200 million won in value-added tax (2 billion won × 10%), and 1.8 billion won in inheritance tax ((10 billion won - income tax 4.2 billion won - consumption 2 billion won - value-added tax 200 million won) × 50%).

Although they earned 10 billion won, after paying taxes, only 1.8 billion won remains. In other words, most of the 10 billion won will belong to the state within three generations.

The fact that love of money is the root of all evil is also proven by the recent Nth Room case participants. A rational person aware of this would want to honestly pay taxes and use the remaining money for good causes according to their will. That is what donations are.

However, in Korea, while donations from conglomerate corporations (legal entities) occasionally occur, donations from conglomerate individuals are minimal. This is undesirable because the owners of corporate entities are shareholders, not the conglomerates themselves. Donations coming from an individual's own pocket have true meaning.

How should we overcome the COVID-19 crisis? Running a deficit budget is undesirable as it passes the debt to future generations. If tax increases are difficult, it is necessary to actively encourage individuals to donate money and use it to combat COVID-19.

The COVID-19 virus invades regardless of wealth or social status. Therefore, social solidarity and mature civic consciousness are essential to prevent it. Solidarity (連帶) is another expression for linking arms, and donation acts can symbolize this. Essentially, the subordinate (money) should follow the nature of the principal (human).

The reason why wealthy individuals like Bill Gates and Warren Buffett make generous donations is because of tax systems that encourage giving. Korea also needs to actively consider tax reforms to promote individual donations. Our people are inherently kind and upright. There are not a few who would like to confess, like Jean Valjean, "I am a thief."

Changnam Ahn, Professor, Department of Economics and Taxation, Kangnam University