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Why punish the rich?

July 06,2018
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Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

A year ago, the JoongAng Ilbo polled 13 real estate experts on their expectations for the Moon Jae-in administration’s strategy to contain housing prices. All of them cited a resurrection of the comprehensive real estate tax, which was introduced by the last liberal government under President Roh Moo-hyun and more or less scrapped by the following conservative governments.

They all gave the same reason — taxing is the top priority in the regulatory textbook. The Moon administration has adopted the same real estate strategy as Roh, targeting owners of apartments in the posh Gangnam neighborhoods of southern Seoul and owners of multiple homes.

The methodology is also the same this time around. It all starts with regulations on loans and reconstruction projects. If they are not enough, taxes are employed — first transaction taxes and ultimately the comprehensive real estate tax.

Real estate experts point to Kim Soo-hyun, senior presidential secretary for social affairs. The comprehensive real estate tax system is also his brainchild. He reflects the ideas of Henry George, who in 1879 wrote the book “Progress and Poverty.” The book argued that land speculation was a driver of inequality, and he championed a single tax as a remedy.

Kim also believed that a progressive national tax on property beyond a certain value was an act of justice. He did not give up even when the Constitutional Court in November 2008 found that the tax was unconstitutional. He called upon conservative governments to keep the tax alive. He was called back to the Blue House after Roh’s chief of staff, Moon, became president last year.

The experts’ prophecies came true, and the presidential committee on fiscal reform recommended reviving the tax. I do not oppose tougher tax on expensive properties. Ever since the book “Capital in the Twenty-First Century” by French economist Thomas Piketty took the world by storm, governments have been interested in levying heavier charges on assets.

But I have questions and reservations about the move.

First of all, why now? If the comprehensive tax is specifically aimed at curbing real estate speculation, the timing could not be worse. In May, 41,989 apartments were sold in Korea, down 27 percent from a year ago. The market has cooled significantly. Moreover, economic conditions at home and abroad have turned dangerously vulnerable. With trade battles spreading in the global economy, domestic data all points to a slumping economy. Interest rate increases triggered by the United States will soon set off the ticking bomb that is Korea’s 1,500 trillion won ($1.3 trillion) household debt.

Second, why does the government want to collect taxes before reasoning on the need for spending? The liberal government’s agenda is expensive. Its nuclear phase-out policy that requires spending to develop substitute renewable energy sources; an ambitious health care program; subsidies for employers due to the minimum wage hike; and possible inter-Korean ventures will all be expensive.

The Blue House and ruling party plan to expand the fiscal budget by a surprising amount. Some say the increase could be in the double digits against this year’s record spending. But there is a limit to the fiscal budget, and the government would have to turn to taxpayers.

Third, why tax only the rich? The comprehensive real estate tax specifically targets the rich. It is also political, because real estate policy itself is political, according to Kim, the senior secretary for social affairs. The tax is a punitive tax on the wealthy. The only countries legitimately taxing the rich are France, Switzerland, Spain, Norway and Iceland. Punitive tax gets less resistance from the public and, therefore, carries less of a political risk. Moon vowed that he will not increase taxes on the working class during his term. His advisory committee on fiscal reform has not even reviewed broader property and consumption taxes.

As a result, Korean taxation will become even more polarized. Only select people would have to pay. The taxation principle of “broad tax base and low tax rate” has long been chucked away. Taxpayers are disgruntled and spenders are uncomfortable. Nearly half — or 43.6 percent — of the population do not pay a cent in taxes.

Every citizen in this country has the duty to pay taxes on their income under the Constitution. But under this government’s reasoning, only the rich are citizens of Korea. The presidential committee on fiscal reform vowed to design a long-term taxation road map. Is this the best it can come up with?

JoongAng Ilbo, July 5, Page 30