The Korea Development Institute (KDI), a national research institute, released an analysis report on the 4th that Korea’s corporate tax rate, which is higher than the average of OECD member countries, could be a burden for ‘Donghak Ants’ (individual investors) and workers . He also said that the argument that ‘corporate tax cut = tax cut for the rich’ is just a political slogan. Amidst the debate surrounding the government’s tax reform plan, which focuses on corporate tax cuts, in the National Assembly’s audit, KDI is advocating for corporate tax cuts.
Kim Hak-su, a senior researcher at KDI, said in a report titled ‘Evaluation of the Corporate Tax Rate System Reform and Future Policy Tasks’, “Corporate tax does not affect the rich, but a large number of investors and workers.” It is just a slogan raised in the process,” he said. In addition, he emphasized that corporate tax cuts will increase corporate profits, which is very likely to lead to an increase in dividends or an increase in stock prices. As an investor, you can increase your dividend income or gain capital appreciation.
In KDI, the number of stock trading activation accounts per economically active population (deposits of 100,000 won or more, and trading accounts at least once every six months) increased from 0.7 in 2010 to 1.96 last year analyzed for evaluation. “As stock investment becomes more common, the benefits of corporate tax cuts can be shared with many people,” he said. Given that the National Pension Fund’s investment in domestic stocks is equivalent to 165 trillion won, he said the corporate tax cut would help ensure the stability of the people’s old age income.
According to KDI, corporate tax also affects workers’ wages. According to the analysis by the Korea Institute of Taxation and Finance, when the marginal tax rate of corporate tax is increased from 20% to 22%, the wage level of workers decreased by 0.27%. Also, according to a 2016 paper by Princeton University professor Owen Jidar and Duke University professor Juan Carlos Suárez Serrato, 40% of corporate tax cuts go to shareholders who receive dividends and 30-35% to new employees or employees with progress. salary.
In the KDI, if the top corporate tax rate is reduced by 1 percentage point, investment will increase by 0.46%, the number of employed people by 0.13%, and gross domestic product (GDP) by 0.21% in the short term. Currently, Korea’s top corporate tax rate is 25%, which is higher than the OECD average of 21.5%.
KDI suggested changing Korea’s progressive corporate tax system. 24 OECD member countries have a single corporate tax rate. Only the Netherlands and Korea operate a progressive tax system. KDI evaluated the government’s tax reform plan as “simplifying the corporate tax in line with international standards and to reduce the top tax rate to the OECD average (23.2%)”. “It is necessary to look at the effects from a medium to long-term perspective rather than short-term changes in indicators such as a reduction in tax revenue,” he said.
By Kang Jin-gyu, josep@hankyung.com staff reporter
