DPK leader needs to talk with PPP on tax details
Another proposal from Rep. Lee Jae-myung, leader of the main opposition Democratic Party of Korea (DPK), is gaining attention. The opposition leader recommended rewriting the inheritance law so that up to 1.8 billion won ($1.24 million) in inheritance tax may be exempt if the criteria are met. The proposal was met with a mix of anticipation and skepticism in light of the fact that the DPK shot down a proposal last year by the government and the ruling People Power Party (PPP) to reduce the maximum inheritance tax rate from 50 percent to 40 percent, among other things.
This time, the DPK leader proposed raising the flat deductible amount from the current 500 million won to 800 million won, and spousal deduction from 500 million won to 1 billion won. Under those rules, an inheritor receiving a 1.8 billion won home from a spouse will be exempted from taxes for that housing. With the median price of an apartment in Seoul estimated at 1.27 billion won, hauling up the flat deductible amount would invariably meet the approval of many homeowners in Korea.
By putting the inheritance tax issue back on the table, Lee has in mind a possible early presidential election amid the impeachment hearings on President Yoon Suk Yeol's Dec. 3 martial law declaration. As soaring housing prices in Seoul have made more people subject to inheritance tax, Lee invariably deploys a populist approach to woo moderate voters in the greater capital area. He has made it clear that the DPK opposed the PPP proposal to revise the maximum inheritance tax rate as benefiting only the "few ultra wealthy." The 50 percent maximum inheritance tax rate hikes further up to 60 percent when a major shareholder of a company is the beneficiary of the inheritance. The PPP is opining that this high maximum tax rate hinders continuity for smaller family-owned businesses where they are forced to sell over high inheritance tax.
The tax issue is a sensitive one, as it is also related to lesser tax revenue and alleviating inequality. However, caution must be exercised when considering revisions to the inheritance tax law, which has remained unchanged since 1997.
By bringing the issue up now, Lee sets the stage for the tax revision to possibly become a campaign policy issue, should there be an early presidential election, offering voters a chance to review and decide what type of tax policy they want. He should prompt debate and discussions with the ruling party for a possible revision. The average maximum inheritance tax rate among the 38 OECD member nations stands at 13 percent, while that of Korea stands at 50 percent. Japan had the highest rate at 55 percent.
As the largest party with 170 seats in the National Assembly, the DPK's proposals are likely to turn into a reality. Yet, Lee's recent flip-flop on right-of-center policies is inviting skepticism.
As calls heightened to relax the total 52-hour workweek limit with the Semiconductor Special Act, Lee initially signaled he would be willing to compromise and accept a "white-collar" exemption for high-income researchers. Facing opposition, he walked back. Another flip-flop came regarding the universal 250,000 won cash voucher, which Lee said he could forgo in favor of a supplementary budget to revitalize the economy. Yet, a budget that would allow for the cash voucher plan has been included in the DPK's 30 trillion won supplementary budget proposal. A more detailed picture of Lee's stance may come out by Thursday after the four-way consultative meeting between the government, the ruling and opposition parties and the National Assembly represented by the speaker.
If Lee is sincere in his proposal to ease the people’s tax burden, he should also discuss with the ruling party their proposed maximum inheritance tax rate, so that the most effective revisions can be worked out.
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