'Lee Jae-myung-style' Inheritance Tax Reform... Accelerating 'Targeted Tax Cuts' to Appeal to the Middle Class

Targeting Completion of Reform as Early as February
Focus on Raising Uniform and Spousal Deduction Amounts
Lee Seeks to Secure Centrist Voters with Rightward Shift

The Democratic Party of Korea has set a goal to complete the revision of the key bill directly related to people’s livelihoods, the 'inheritance tax reform,' as early as this month. The party plans to accelerate targeted policies to ease the tax burden on the growing middle class, whose asset size has increased due to rising real estate prices.

According to political circles on the 4th, the Democratic Party is seeking a consensus mainly through the Planning and Finance Committee to finalize the stalled revision of the Inheritance Tax Act in the National Assembly. This is part of Lee Jae-myung’s strategy to strengthen a pragmatic approach to secure the centrist voter base, and also reflects some changes in the government’s stance on tax reform following the impeachment crisis of President Yoon Seok-yeol.

The inheritance tax reform effort by the Democratic Party is led by Im Kwang-hyun, the party’s floor deputy representative. The core of the party’s proposed inheritance tax reform is to raise the minimum deduction threshold up to 800 million KRW. Specifically, the uniform deduction amount would increase from the current 500 million KRW to 800 million KRW, and the minimum spousal inheritance deduction would rise from the current 500 million KRW to 1 billion KRW. For example, under the current law, inheritance assets of 1 billion KRW (500 million KRW + 500 million KRW) or less are exempt from tax, but if the Democratic Party’s proposed amendment passes, tax exemption would apply to assets up to 1.8 billion KRW (800 million KRW + 1 billion KRW).

Lee Jae-myung, leader of the Democratic Party of Korea, is attending the Supreme Council meeting held at the National Assembly on the 5th. Photo by Kim Hyun-min

Im, who proposed the amendment, said in an interview with Asia Economy, "According to data, about 2.9% of decedents in Seoul 10 years ago were subject to inheritance tax, but recently this figure has exceeded 15%," adding, "If the uniform deduction and spousal deduction are adjusted slightly, the burden on those falling into the taxable inheritance bracket can be alleviated." Im also stated, "There is no change in maintaining the current standards regarding the child deduction limit and the highest tax rate adjustment proposed by the previous government and ruling party."

Previously, the government proposed maintaining the uniform and spousal deductions but lowering the top tax rate from 50% to 40%, and raising the child deduction from 50 million KRW per child to 500 million KRW. The Democratic Party has consistently opposed the reduction of the top tax rate, viewing it as a 'tax cut for the ultra-rich.' The party has emphasized that their inheritance tax reform is a 'targeted tax cut' for the middle class, not a tax cut for the wealthy.

Unlike last year, a change in the atmosphere of the government and ruling party is also being sensed. This is because the government has opened the possibility of negotiation on tax law revisions following President Yoon’s impeachment. A member of the Democratic Party’s Planning and Finance Committee said, "The ruling party also partly agrees on easing the inheritance tax burden on the middle class," adding, "There were strong orders from the presidential office at the time regarding lowering the top tax rate, making it difficult for the Ministry of Economy and Finance to concede, but now the situation has somewhat changed."

The Democratic Party’s acceleration of the inheritance tax reform is based on the fact that the bill is a pragmatic policy directly linked to people’s livelihoods, championed by Lee Jae-myung. After the August 18 party convention last year, Lee said at a press conference, "I oppose lowering the inheritance tax rate, but shouldn’t we prevent situations where people are forced out of their homes because of inheritance tax?" signaling a rightward shift. Political commentator Park Sang-byeong predicted, "Lee will continue to strengthen his appeal to centrist voters through rightward moves such as inheritance tax reform."