America Goes for Tax Increase While South Korea Goes for Tax Decrease

The U.S. is the very source of tax cut policies. President Ronald Reagan of the Republican Party, fascinated by supply-side economics, carried out large tax reductions. He was utterly charmed by the words of a few advisory staff who claimed that tax cuts would encourage the work force and investors, which would in turn stimulate economic growth followed by more tax revenues. But reality did not follow his expectations. Once the richest nation on earth, America’s financial foundation was shaken to its roots due to the large tax cuts in the late 1980s, stabilizing only after a tax increase in the 1990s by President Bill Clinton of the Democrat Party.

President George Bush of the Republican Party, who came into office in 2001, also implemented large tax cuts, claiming it was for economic growth. The size of this tax reduction grew to almost $1.7 trillion over a period of 10 years. The result was a massive budget deficit. President Barack Obama of the Democrat Party, who came into office in 2009, after hastily dousing the fires of the financial crisis, implemented a tax increase in 2013 to deal with the budget deficit problems.

Obama’s approach to tax increases is to raise income taxes for the top one percent of the income pyramid. This “rich tax” reflects the fact that the last 30 years of the winner-take-all economic model have turned middle/lower class life into a hardscrabble situation, with wealth concentrated among a very few, creating the social dichotomy of the one percent vs. the 99 percent. Obama also revealed that he plans to expand the range of this rich tax next year. His tax increase campaign also extends to corporations. He intends to push measures that will allow for increased taxes on American corporations, even on their reserved incomes made on foreign soil.

Originally, Republican administrations, focusing on social stability, tended to implement policies that would strengthen financial soundness. In contrast, Democratic administrations have tended to increase budget spending in favor of welfare. After the 1980s, however, America’s situation reversed. Now the picture shows a Democratic administration struggling to salvage an economy squandered by previous Republican governments.

During the period of the Cham-yuh administration in Korea,* the government focused on securing funding for social welfare programs via legalizing the underground economy, such as omitting income from self-employed businesses, diminishing non-taxable incomes and restructuring annual expenditures. And as if this were not enough, additional means of securing funding were left up to the people; in other words, the next tax increase was for the next administration to deal with, not Cham-yuh’s. Nevertheless, it did its best to secure further financing by various means such as increasing credit card/cash receipt usage.**

However, Lee Myung-bak’s administration which followed implemented tax cuts on the richest, approximately $18 billion annually. Just like that, the money saved up during the Cham-yuh administration went up in flames. The “tax cut on the richest” policy was intended to be permanent, and thus, the current administration continues to implement it. Even though the birthplace of the tax cut, America, now recognizes the damage it does and has introduced a new series of taxes on the rich, we in Korea still do nothing to fix the situation.

While watching the recent “welfare without a tax hike” debate, we are forced to ask ourselves what our politicians have done exactly over the past 10 years to secure welfare funding. Deputy Prime Minister Choi Kyung-hwan’s statement that, “the Cheongwade [Translator’s Note: the South Korean presidential residence] and the government’s official stance is to prioritize legalizing the underground economy and restructuring expenditure and if possible, we will carry out the tax increase in accordance with the national consensus” is exactly the same as 10 years ago. Perhaps we can take solace in the fact that the conservative administration is finally catching up with the headaches of the liberal administration 10 years ago and trying to rectify the situation. But based on their performance so far, it is more likely that they are just trying not to deal with it, passing the burden on to the next administration.

*Translator’s note: An alternative name for the Roh Moo-hyun administration, the ninth president of South Korea.

**Translator’s Note: This policy was implemented so the government could keep track of monetary movement, even in cash and credit form, so that taxes on it could be levied properly without being omitted.