"Popular 'Salary Worker Tax Cut Theory' Gains Momentum... Faces Tax Revenue Shortfall Challenge"

# Income Tax Reduction Debate Gains Momentum Ahead of Presidential Election (Sejong = Yonhap News) Reporter Lee Joon-seo - As South Korea nears the June 3 presidential election, the debate over income tax reduction is becoming a key issue among political parties. Although promises of tax cuts are common during election seasons, experts express concerns over the absence of detailed funding proposals or comprehensive tax reform plans, labeling these pledges as unrealistic "empty promises." Analysts caution that reckless implementation of tax reduction promises could worsen the government’s fiscal constraints, creating a long-term "tax revenue gap" that may result in future policy challenges. Examples from other countries, like the U.S. Trump Administration's reversal on high-income tax cuts due to revenue shortages, and Japan's delay of a "consumption tax reduction" plan, highlight the risks of hasty tax policy changes. # Presidential Contenders Rethink Tax Policy Framework According to political insiders and government reports on the 11th, major presidential candidates are centering their tax policy platforms on reducing income tax for workers. This bipartisan consensus includes Lee Jae-myung of the Democratic Party of Korea, who is known for his "pragmatic mechanism" approach, discussing income tax reform. The People Power Party, a traditional advocate for tax cuts, also supports this theme in the current presidential race. A prominent proposal is the "income tax inflation linkage system," which adjusts tax brackets to account for rising inflation rates. Lee Jae-myung highlighted the unfairness in the current system, stating in a March 30 workplace roundtable, "While nominal wages in South Korea may rise, they often fail to keep pace with inflation. Salaried workers, often dubbed wage slaves, see their effective income stagnate while their tax burden increases due to inflation-induced bracket creep." This "inflation tax creep" occurs as nominal wages rise annually with inflation, pushing taxpayers into higher brackets without changes to tax rates. For authorities, it has become a "golden goose" strategy for increasing revenue without provoking taxpayer backlash. # Proposals to Expand Exemptions and Deductions Without Changing Tax Rates Several candidates have also pledged to expand income and tax credit benefits for salaried workers without altering core elements like tax rates or bands. Lee Jae-myung has already proposed legislation to significantly raise the income tax deduction rate for certain local currencies from the current 30% to 80%. The People Power Party considers expanding basic income tax deductions and offering tax-saving benefits for worker bonuses. Experts acknowledge the need for reform, given the significant increase in workers’ income tax burden over recent years. A recent report by the National Assembly Budget Office titled "Recent Trends in Income Tax Growth and Implications" states that total income tax in 2023 was approximately KRW 60 trillion, a 2.4-fold increase from KRW 25 trillion in 2014, with an average annual growth rate of about 9%. The report attributes this growth to a sharp rise in high-income earners making over KRW 80 million annually, from 1.03 million in 2014 to 2.53 million in 2023. While taxable income below KRW 88 million is subject to a 6–24% tax rate, earnings exceeding this threshold face rates between 35% and 45%. The share of income tax in nominal GDP climbed from 1.6% in 2015 to 2.4% in 2022. Conversely, corporate tax revenue, which expanded from 2.6% of GDP in 2015 to 4.5% in 2022, has fallen to 3.3% in 2023 and further to 2.5% last year due to the Yoon Suk-Yeol administration's corporate tax cuts and ongoing economic stagnation. # The Looming Threat of Revenue Shortfalls Despite the growing calls for tax reform, a significant challenge remains: potential revenue shortfalls. Unlike corporate tax revenue, which fluctuates with economic conditions, income tax adjustments have an immediate impact on national revenue. With corporate tax collections still sluggish due to factors such as the U.S.-China trade dispute and structural weaknesses in domestic demand, pursuing income tax reductions could heighten fiscal risks. Data from the Ministry of Economy and Finance reveals that corporate tax collection progress as of March stood at just 28.6% of the annual budget, lower than the previous year's 30% and the five-year average of 29.5%. Typically, about 30% of annual corporate tax revenue is collected by March, but this year, the figure fell short at 28.6%. An income tax reduction in these circumstances could severely strain government spending for welfare programs and other fiscal initiatives. Choi Byung-ho, a professor in the Department of Economics at Pusan National University and former president of the Korean Association of Public Finance, stated, "Although the idea of an income tax inflation linkage system has been discussed for years, it has never been implemented because of its impact on revenue. To maintain revenue while introducing such a system, an inevitable outcome would be raising tax rates." Economists also point out the disproportionately high percentage of income tax exemptions in South Korea compared to other advanced economies, arguing that reducing the exemption rate could be an essential first step. According to the National Tax Service, in 2023, 33% of wage earners paid no income tax. jun@yna.co.kr