[The Editors' Verdict] Corporate Tax Is Not a Tax on the Rich

Yoon Government's Tax Reform Plan Sparks Another Parliament Clash Over Key Corporate Tax Cut
Amid Global Corporate Tax Cuts, Korean Companies Struggle with High Taxes Like Wearing a 'Sandbag'
GDP Growth Follows Tax Cuts... Verified Statistics Needed

[Asia Economy Reporter Lee Cho-hee, Head of the Industry Department] "Nothing is certain but death and taxes."

This English proverb is commonly paraphrased in Korea as "Death and taxes are unavoidable." The core of this short but powerful sentence is that taxes are portrayed as something as fearsome as death.

Taxes are a peculiar system that receives criticism whether they go up or down. The public tends to focus on "who else will benefit more than me" when taxes rise or fall. It is unacceptable for more money to come out of my pocket, but the irony of taxes is that people become enraged when someone else's pocket is less emptied than theirs.

Since the launch of the Yoon Seok-yeol administration, the policy that has received the most attention is the tax reform plan. One of the key points is the reduction of corporate tax. Citizens who earn money must pay taxes to the country accordingly. This is income tax. Income tax has existed in every part of the world regardless of geography, culture, or ethnicity since commerce began. The history of corporate tax is relatively short. The United States introduced corporate tax in the early 1900s, followed by major European countries, and Korea only began collecting corporate tax in 1950.

Despite various political disputes causing turmoil in the National Assembly, the economic sector's focus is on the tax cut proposal. Currently, a bill to amend the Corporate Tax Act to lower the highest corporate tax rate from 25% to 22% is pending in the National Assembly. At a recent parliamentary forum, the Ministry of Economy and Finance argued that lowering corporate tax would boost economic vitality and secure fiscal soundness. The opposition's framing of this is labeling it as a "tax cut for the rich."

Corporate Tax Amendment Proposal

The issue to consider here is whether lowering the rate to 22% truly constitutes a massive privilege for large corporations. Looking at past changes in the highest corporate tax rate: in the early 1990s, the top rate was 34%, which was lowered to 28% during the Kim Young-sam administration, then to 27% under Kim Dae-jung. Under the Roh Moo-hyun, Lee Myung-bak, and Park Geun-hye administrations, it was gradually reduced to 25% and then 22%. The highest rate, which had been steadily lowered over about 20 years, was reversed to 25% during the Moon Jae-in administration. Although the Yoon Seok-yeol administration is pushing for a corporate tax cut, strictly speaking, it is merely restoring the rate to its previous level before the sudden increase under the Moon administration. If this is called a "tax cut for the rich," then the previous government's increase in the highest corporate tax rate should be called a punitive tax hike on the wealthy for the sake of fairness.

Korea's highest corporate tax rate is higher than the average of the Organisation for Economic Co-operation and Development (OECD). Also, corporate tax cuts are a global trend. According to a recent report by the Korea Development Institute (KDI) titled "Evaluation of the Corporate Tax Rate System Reform Proposal and Future Policy Tasks," an analysis of 55,000 European companies showed that increasing corporate tax by 1 dollar reduced wages by 0.64 to 0.49 dollars. This means that corporate tax is not only paid by companies or major shareholders. Ultimately, the majority of citizens end up bearing the tax burden.

No one would blindly believe the government's claim that lowering corporate tax will produce a trickle-down effect. However, it has already been proven by cases in advanced countries that corporate tax cuts ultimately promote Gross Domestic Product (GDP) growth. Rather than inflammatory slogans like "tax cuts for the rich," proven figures and statistics might be more trustworthy.