The government tax reform plan for 2023 has been announced. It is said that the emphasis was placed on tax cuts on tweezers for common people and real life. Looking at the contents, the gift tax deduction for wedding funds was increased to 300 million won, and the income deduction rate for books, performances, and movie tickets was increased to 40% (currently, 30%). The income requirement for tax credit for postpartum care was abolished (currently, only for workers earning less than 70 million won), and the standard for separate taxation of private pension income was raised. Let’s see if this can be described as tax cuts for ordinary people and real life.
First, let’s find out what income deductions are for books, performances, and movie tickets. If you use a lot of credit cards (including check cards and cash receipts) (exceeding 25% of your total salary), you can receive an income deduction of up to 3 million won depending on the usage rate. However, the amount spent on traditional markets, public transportation, book performances, etc. with a credit card is additionally deducted up to 3 million won. Who will get this benefit and how much? Can we really reduce the burden on the common people?
First of all, all self-employed or freelancers who are not earners of wages are excluded. Deductions such as credit cards are benefits that apply only to earned income earners. The common people who do not have stable earned income are not the target from the beginning. As of 2021, the number of earned income earners in Korea is 20 million. About 7 million out of 20 million people (35%) earn zero won in earned income tax. Since my income is less than duty free, I have no tax to pay anyway. Since there is no tax, even if the amount of income deduction increases, the increase in income deduction benefit is 0 won.
So, how much will the middle-class taxes be reduced? If you spend about 1 million won on books, performances, etc., your income deduction will increase from 300,000 won to 400,000 won. However, 400,000 won in income deduction does not reduce taxes by 400,000 won. A tax deduction means that the amount of income you have to pay taxes on is reduced. In other words, if the income amount of 100,000 won is reduced, the reduced tax amount will be different depending on my annual salary (tax table). The marginal tax rate for low-income earners of approximately 30 million won or less is 6%. If the amount of income decreases by 100,000 won, the tax reduction is only 6,000 won. The marginal tax rate is 15% for the middle class with an annual salary of 40 to 70 million won. The reduced tax is about 15,000 won. In the end, it is a benefit that reduces the tax of the middle class who spends about 1 million won on books and performances by about 1,000 won per month. By the way, put your hand on your chest and think about it. Did I really spend 1 million won a year on books, concerts, etc.? If not, the benefit is not even 1,000 won per month. On the other hand, the highest tax rate in Korea is 45%. If the income of the high-income class decreases by 100,000 won, the amount of tax reduced is 45,000 won.
Let’s wrap it up. When the income deduction rate for books and performances is expanded by 10%, the tax cut benefit for the bottom 35% of ordinary people who do not pay taxes anyway is 0 won. The credit card deduction applies only to those who spend 25% or more of their gross salary on a credit card. Three-fourths of ordinary people with an annual salary of 40 million won or less, who spend less than 25 percent of their total salary, such as monthly rent and parents’ pocket money, receive zero won credit card deductions. This accounts for half of Korea’s 20 million earned income earners. In the end, the expansion of credit card deductions for books and performances is not a benefit for the bottom 50%, and it is a system that is more advantageous for the higher-income class. If all of these deductions are eliminated, how about converting the money raised to financial expenditures such as book vouchers and performance vouchers, rather than tax reduction (tax expenditure)?
Second, is the expansion of tax credits for postpartum care really a policy for the common people? Even now, postpartum care expenses for workers earning less than 70 million won are tax deductible up to 2 million won. Of course, this is of no benefit to workers below duty-free shops. However, this time, the income amount standard was deleted. This means that even an annual salary earner of hundreds of millions of won can receive a tax deduction of 2 million won. This is not to say that postpartum care should not be provided to billionaires. However, it is clear that the expansion of tax deductions for postpartum care expenses for workers earning more than 70 million won is not a policy for the common people.
Third, expansion of separate taxation of private pension income. First of all, the fact that pensions are taxed can feel bad in itself. Of course, I know the great principle of ‘where there is income, there is tax’. However, since I am retired and living on a pension, should I tax the pension income, which is the income메이저놀이터 generated from the money I paid, as income? The reason why pensions are taxed is because when I pay my pension, I get a tax deduction. Unlike the principle of ‘there is tax where there is income’, when past earned income occurs, there is a portion of tax that has not been paid even for the generated income. A portion of the amount invested in the pension was deducted. Therefore, it should be understood that the tax that had to be paid in the past on income generated in the past is deferred to the time of pension receipt. And if you convert the amount you received in the past to the future value, it is incomparably larger than the tax you pay when you receive your pension.The government boasts that most of the tax cuts in this year’s tax reform plan are for the working class and the middle class. The media also repeats the government’s boast. But there is no tax cut for the common people. Tax reduction benefits are fundamentally impossible for ordinary people below duty-free shops who cannot pay taxes anyway. And the effect of tax cuts on the common people who pay little tax is very limited. Tax cuts are inevitably a policy for the top 50%, and the higher the income, the greater the benefit. Therefore, in principle, the policy for the common people is to collect all taxes and make fiscal expenditures through the collected tax revenue. In particular, the government says that the standard for the middle class is a person with a total salary of 78 million won, which is 200% of the average wage of all workers. It is more common to say that the middle class standard is 200% of median income rather than 200% of average income. This is why the government’s statement that it arbitrarily sets high standards for the middle class and that most of the tax cuts go to the lower middle class is empty.