Monday, February 9, 2015

Welfare vs. Taxes in Korea: Nobody wants to Pay the Piper

It might appear that Korean politicians are not complete fools after all.

When President Park Geun-hye was campaigning to become president, she promised that she would deliver a lot of goodies, and much more, without ever raising taxes.

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A few days ago, however, Representative Kim Moo-sung, the chairman of her own party, said, “It is impossible to finance welfare without tax hikes, and it is inappropriate for politicians to deceive the people.”

Representative Kim was not alone in voicing this sentiment.

So do Koreans want a greater welfare state? The answer seems to be “yes and no.”

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As Steven Denney said in his recent article in the Diplomat, in a poll that was commissioned by JTBC, 46.8 percent of the public favor welfare cuts over a tax increase. 34.5 percent of the public think that a tax increase is needed to pay for welfare; and 18.7 percent didn’t know what to think.

So it might seem that many people do not support expanding the welfare state. However, one always has to remember the old adage about lies and statistics. That is because 52.8 percent of the respondents, a clear majority, supported increasing the corporate tax rate.

What Mr. Denney got absolutely right was when he said “The simple fact of the matter is that South Koreans might not support more welfare, if it means that they have to pay for it.”

(What Mr. Denney got absolutely wrong was that he thinks Korea needs a welfare state.)

Isn't that typical? Everybody wants to go to the party, but nobody wants to pay the piper. Case in point, when salaried workers angrily protested that many of them were likely to pay additional taxes this year instead of receiving a tax rebate, a move that was made by the government in order to help pay for its welfare programs, Finance Minister Choi Kyung-hwan said the government would consider revising tax return regulations.

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It yet again goes to prove that Frédéric Bastiat was absolutely right when he said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

So who will be made to pay more taxes? The easy answer seems to be to raise the corporate tax.

After all, Finance Minister Choi said that the government may consider raising corporate taxes and that “the government does not regard corporate tax as too sacred of a realm to enter.”

But will raising corporate taxes come at no cost? I will let the maestro speak for himself.

However, as succinct as Milton Friedman was, this video did not even cover other questions. Could it cause domestic corporations to invest less in order to pay less corporate taxes? Or might it cause them to invest elsewhere? Could it lead to more corporations hiding their money in overseas bank accounts? How much more will it cost taxpayers for the government to investigate and try business owners for tax evasion? Could it dampen foreign investments? If so, by how much?

Assuming that we can even find answers and practical solutions to those questions, then we have to ask the second batch of questions. Will welfare benefits remain constant? Will increasing welfare benefits help to lift the poorest Koreans out of poverty so that they will no longer need to rely on welfare? How will aging and low birth rates affect welfare programs, future taxation, and the national debt?

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In regards to the Saenuri Party's leadership's dithering about welfare benefits and taxes, Mr. Denney rhetorically asks “Is this strategic dissonance, or does Saneuri simply not know what it wants?”

It is certainly not the latter. All political parties in the world want the same thing. They either want to attain or retain political power. Ipso facto, the correct answer is the former.

However, this dissonance is not limited to the Saenuri Party. It is an ailment that the entire country is suffering from. To use an analogy, all democratic republics in the world act like a mirror; and are, therefore, a reflection of the body politic. And as I said earlier, everybody wants to go to the party, but nobody wants to pay the piper.

Mr. Denney, (and other like-minded people) was wrong then, and assuming that his position has not changed, he is wrong now. Korea does not need a welfare state. If anything, it is the very last thing it needs.

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