Yeouido Institute Middle-Class Triple Tax Burden Normalization Forum
Inheritance Tax Should Be Aligned with OECD Member Country Levels
Domestic Capital Moving Abroad...Urgent Need to Abolish Financial Investment Tax
Need to Reestablish Efficiency and Equity in Real Estate Tax System
On the 3rd, the People Power Party identified excessive inheritance tax, financial investment income tax, and comprehensive real estate tax as the three major tax policies that are dismantling the middle class, and argued that these tax systems should be revised to reduce the tax burden. Since the 2022 presidential election, the People Power Party has emphasized the need to restore the middle class, and this is seen as a foundational effort to strengthen the revision of inheritance tax, financial investment income tax, and comprehensive real estate tax ahead of the government's tax reform announcement.
The Yeouido Institute, the think tank of the People Power Party, held a discussion titled "Restoring the Middle Class: Normalizing the Three Major Tax Burdens on the Middle Class" on the afternoon of the 3rd at the large conference room on the 3rd floor of the People Power Party Central Party Office in Yeouido, Seoul.
Panelists at the discussion included Lim Dong-won, Research Fellow at the Korea Economic Research Institute (inheritance tax), Lee Dae-ho, CEO of Y-Street (financial investment income tax), and Kim Woo-chul, Professor at the University of Seoul (comprehensive real estate tax). The moderator was Oh Jung-geun, President of the Free Market Institute. Members of the People Power Party's Fiscal and Tax Reform Special Committee were scheduled to attend but were absent due to the National Assembly plenary session schedule.
In his opening remarks, Hong Young-rim, Director of the Yeouido Institute, emphasized, "There is a growing voice that we need to change the perception of the middle class as a 'goose that lays golden eggs' for taxes. Focusing on 'plucking the feathers' of the middle class causes significant social side effects. The biggest victims of the so-called 'tax cuts for the rich' frame advocated by the opposition party are the middle class. The early days of the 22nd National Assembly, which has no nationwide elections, is the golden time to normalize the excessive tax burden on the middle class."
Inheritance Tax Unchanged for 24 Years... A Significant Portion of Taxpayers Are Middle Class
While the inheritance tax base has remained fixed for 24 years, the number of taxpayers has increased, with a significant portion being middle class. Research Fellow Lim pointed out in the discussion on inheritance tax, "Although the inheritance tax rate and tax base have remained unchanged for 24 years, the number of taxpayers has increased twelvefold compared to 20 years ago. Due to rising real estate prices and increased asset sizes, inheritance tax, which was previously paid only by high-net-worth individuals, has become a tax that the middle class can also pay over the past 20 years."
According to the 2023 inheritance property declaration status announced by the National Tax Service, 42.9% of all declarants had inheritance property valued between 1 billion and 2 billion KRW. The next largest group was those with 500 million to 1 billion KRW, accounting for 24.8%. Those with over 10 billion KRW accounted for only 2.5%.
Research Fellow Lim criticized that Korea's current inheritance tax does not align with the international trend of easing or abolishing inheritance taxes. Among OECD member countries, 23 impose inheritance tax, while 15 do not. Among the 23 countries that impose inheritance tax, 14 further reduce the tax rate for direct descendants. In particular, discussions on gradually abolishing the UK's inheritance tax (with a rate of 40%) are gaining momentum.
Lim stated, "Heavy taxation on inheritance does not contribute to tax revenue, hinders household asset formation and transfer, and imposes excessive tax burdens. Therefore, a comprehensive reform of inheritance tax for the middle class is necessary. To alleviate the tax burden on the middle class, the inheritance tax should be reformed to reflect realities such as inflation and to align with social environments like aging."
Specifically, he proposed lowering the high inheritance tax rate of 50% to the OECD member average of 30% and reducing the number of tax brackets from the current five to three. He also mentioned transitioning to an inheritance acquisition tax system that levies taxes fairly according to the taxpayer's ability to pay.
"Financial Investment Income Tax Will Drive Investors Away... A Swift Decision to Abolish Is Needed"
Despite major international stock markets hitting record highs daily, the KOSPI and KOSDAQ indices have struggled. Critics argue that if the financial investment income tax (financial investment income tax) is implemented early next year, domestic capital outflow will accelerate further. Although the Korean stock market lags behind major stock markets in terms of low price-earnings ratio (PER), price-to-book ratio (PBR), and shareholder return rate including dividends and share buybacks, the introduction of the financial investment income tax will drive capital to overseas markets where profits are easier to achieve.
Lee, who presented on the financial investment income tax, countered the opposition party's claim that the tax is paid only by the top 1% and does not affect ordinary or small investors, stating, "The exit of major investors from the market will trigger a domino effect impacting general investors as well." He noted that amid the growing certainty of the tax's introduction, capital is flowing out to U.S. stocks, which have higher shareholder return rates and valuations. Lee explained, "The worst uncertainty is expected in the second half of this year. The daily trading volume on KOSDAQ has shrunk from the 10 trillion KRW range to the recent 7 trillion KRW range." He added, "Companies that have moved overseas are given incentives to reshore, but if capital that has left abroad returns, incentives should be provided. Therefore, the financial investment income tax is illogical."
He also expressed doubts about the tax revenue effect. According to a 2021 budget policy study by the National Assembly Budget Office, applying the financial investment income tax is expected to increase tax revenue by about 1.7 trillion KRW. However, Lee argued that securing tax revenue may be difficult due to tax avoidance methods. There is a high possibility of capital flight to overseas stock markets, and profit realization tends to be timed to the tax base of 50 million KRW at the end of each year, which could distort the stock market. Lee emphasized, "The stock market will face difficulties in the third and fourth quarters, and there will be a flood of avoidance transactions. A swift decision to abolish the tax is necessary."
"Need to Reestablish Efficiency and Equity of Real Estate Tax System... Holding Tax Should Be Normalized"
There was also a proposal that, since the real estate tax system has been abused as a means to prevent speculation, it is necessary to reestablish the principles of efficiency and equity. Transaction taxes, which restrict free trading, should be reduced or abolished, and holding taxes, which are recognized for their equity effects, should be normalized. Professor Kim Woo-chul said, "For the normalization of holding taxes, it is ideal from an efficiency perspective to tax undeveloped land rather than houses or buildings. The excessively progressive tax rate system of the comprehensive real estate tax should be changed to a single proportional tax, and ultimately, the comprehensive real estate tax should be absorbed into the property tax."
He also explained the need to apply high deduction standards for family homes held for actual residence purposes and to provide tax credits for long-term holdings or elderly owners. Regarding this, Professor Kim said, "Even if relief measures are implemented, if the holding tax burden is unbearable, it is necessary to consider the U.S. case of tax deferral, which allows one-household owners below a certain income level to defer tax payments for a considerable period."
Meanwhile, the Yeouido Institute plans to continue a series of discussions titled "Leap to the $40,000 Era: Four Major Big Issues," focusing on sustainable growth of advanced industries such as artificial intelligence (AI) and semiconductors, structural reform, and national survival, starting with this middle-class restoration discussion.
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