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Funny numbers

Korea’s equality coefficient is actually not bad compared to other OECD countries.
Aug 04,2017
Economic bureaucrats are obsessed with numbers. They particularly rely on figures during transitional periods like now, as they curry favor with the ruling power with its left-leaning platform of higher taxes on the rich and the phasing out of nuclear power. They can prove competence and earn the confidence of the new ruling power by matching its policies with the right sets of data.

However, they must be extra careful. If they cook up figures, they could face immediate headwind from the opposition. They must make sure their figures are incontestable.

Bureaucrats are experts with numbers. They somehow come up with data customized for the incumbent ruling power. The math is not that hard since it only requires moving and tweaking figures here and there. They make additions and subtractions. Figures always come in handy in changes to the tax code. The new government’s first tax code changes were kind of sloppy because it had to incorporate higher tax levies for the super-rich at the last minute.

Figures were borrowed here and there to create a rationale for bigger levies on the rich with data showing worsening discrepancies in wealth. The most popular measurement to gauge economic inequalities is the Gini index. The higher the coefficient, the bigger the income discrepancies in a country.

But Korea’s equality coefficient is actually not bad on a comparative scale of the 35 members of the Organization for Economic Cooperation and Development. That index would therefore not be very convincing. So the finance ministry dug up supplementary data — Gini coefficients before and after taxes — to measure our wealth equality.

The higher the rate, the bigger the room there is for improvement through tax administration. The reading was 13.5 percent for Korea in 2014 whereas it was 42.2 percent for Germany, 31.3 percent for the United Kingdom, and 22.4 percent for the United States.

The difference in pre- and post-tax coefficients was relatively low in Korea not because it levied less on the rich. It still collected big, but at the same time made big deductions. Taxes are refunded for donations, education and credit-card spending, which benefit the high-income earners more because they spend more.

The universal subsidies for childcare, preschool education, school meals and university tuition also played a part. Inequality can be eased when aid goes to the poorer classes. But the child welfare programs affected all regardless of income, and ended up doing little to ease inequality. But all the explanations were dropped.

Figures also were bent to support a government plan to up the maximum corporate tax rate to 25 percent from 22 percent. To argue there is still room for a hike in corporate tax rate, the finance ministry presented reference figures showing the average maximum corporate tax rate among 11 members of the Group of 20 economies, which was 24.7 percent. It did not mention that the United States was lowering its corporate tax rate to 15 percent and China also is mulling actions to prevent companies from moving out to countries with lower taxes.

While raising the maximum tax rate for income-earners of more than 500 million won ($444,760) from 40 percent to 42 percent, the ministry showed the OECD average high-income tax rate at 41.9 percent. It left out 10 others with lower tax rates and included 25 with higher ones. The OECD average of 35 economies in 2015 was 35.5 percent. That figure, of course, is not mentioned.

No numbers can cover all the ambitious plans of a government. Even the best bureaucrat cannot perform such miracle work. Selective taxation can only handle selective benefits.

JoongAng Ilbo, Aug. 3, Page 30

*The author is a columnist of the JoongAng Ilbo.

Yi Jung-jae