[Insight & Opinion] Regret Over Calls to Reduce the Comprehensive Real Estate Tax

The Land Ownership Tax: The Best Tax Agreed Upon by Both Right and Left
Lowering the Comprehensive Real Estate Tax Increases Income Tax Burden on Commoners

I watched director Lee Joon-ik's film Jasan Eobo. I expected a lyrical story about Korea's first fish encyclopedia, but the film consistently moved me deeply with stories of commoners suffering greatly from tax issues. The harsh treatment of imposing head taxes not only on newborn babies but also on deceased children, and the shocking scene where a man, in despair, cuts off his own genitals with a sickle in front of officials, was truly striking.

Director Choo Chang-min's film Gwanghae also depicts the tragic story of a young court lady who enters the palace due to her family being destroyed by excessive taxes. During the Joseon Dynasty, officials and yangban, who owned most of the land, were hardly taxed. The taxes for running the country were entirely borne by the commoners responsible for production activities.

As the commoners suffered, a type of possession tax called the Daedongbeop was introduced by some reformers, which imposed higher taxes on those who owned more land to alleviate the tax burden on the lower classes. This was met with tremendous resistance from officials and yangban who owned land. As an economic historian, I find the reason why King Gwanghae was dethroned by the Injo coup in the fierce opposition of officials to his decisive implementation of the Daedongbeop.

Despite enormous resistance over the next century, King Hyojong expanded the implementation of the Daedongbeop, and eventually under King Sukjong, who effectively subdued the officials, the Daedongbeop was fully implemented nationwide. The commoner economy began to revive, leading to the "Joseon Renaissance" era under King Yeongjo and King Jeongjo. However, it is regrettable that after King Jeongjo's death, when the royal in-laws and officials regained power, both the Daedongbeop and national strength declined simultaneously.

Among economists, it is well known that the debate over whether fiscal policy should be small-scale or large-scale divides free-market advocates and Keynesians. However, why is there little visible controversy among economists about which types of taxes should be raised more? Adam Smith and David Ricardo, considered the fathers of economics, and Milton Friedman, a hero of free-market economics, all argued that taxes on rent or land ownership should be raised the most. Even Keynesians, who strongly reject major free-market theories such as "Homo Economicus," "The Law of Taxation," and the "Efficient Market Hypothesis," have not disputed their claims about taxation. Keynesians also believe that raising property taxes while lowering income taxes helps increase effective demand. Since land ownership tax is the best tax agreed upon by both right- and left-wing economists, there is currently no meaningful opposition within the economics community.

It is regrettable to see recent calls by some policymakers to reduce or abolish the comprehensive real estate tax. It is obvious that lowering this tax will increase the tax burden on commoners through income taxes and others. Since its first implementation in 2005, the comprehensive real estate tax policy has been inconsistent and controversial. This was predictable. Did it not take less than a hundred years for the Daedongbeop to be fully implemented despite tremendous resistance? It will take decades more for the comprehensive real estate tax system to be properly established. However, the sooner it happens, the better for the national economy. I hope policymakers will carefully examine the historical relationship between the Daedongbeop, a type of land ownership tax, and the commoner economy, and also study the opinions of leading economists on land ownership taxation.

Seo Joon-sik, Professor of Economics, Soongsil University