South Korea knows how to bring in the New Year. Ten minutes before the start of 2012 and in the face of significant opposition, South Korea’s National Assembly passed its version of the “Buffet Tax” by voting through a bill requiring a 38% tax rate for those earning more than 300 million won, which is equal to $259,000 U.S dollars. Because of the opposition to the bill, many believed that such a tax increase would be a political impossibility. Nevertheless, at literally the midnight hour the National Assembly was able to pass this legislation (perhaps because of the fact that South Korea has a set of general elections in April of this year).
Personally, I find that the passing of this legislation provides hope for this country. South Korea’s economy and deficit situation is arguably in a lot better shape than that of the United States (it was able to avoid going into recession as a result of the global financial crisis, and its debt is only 22 % of its GDP compared to 102% for the United States), indicating theoretically a lesser level of necessity or public demand/political will for a revenue increase, and despite this, the tax increase was passed. Simply, if South Korea can pass a “Buffet Tax” in a climate where it theoretically is less desired or necessary, then why can’t the United States pass it in our current political/economic climate? But, perhaps I’m just too optimistic…
http://taxprof.typepad.com/taxprof_blog/2012/01/south-korea-passes.html
http://english.donga.com/srv/service.php3?biid=2012010277268
I’ve heard a lot over the past few weeks about tax rates for those who make the most (Mitt Romney in particular) and the conversations typically irritate me. Wealthier people tend to receive more income from investments, and they pay a lower tax rate on those investments (the long-term capital gains rate). Ordinary income is taxed differently – the wealthiest do pay the highest ordinary income tax rate (currently 35-40%). The long-term capital gains rate is in place to encourage investment, which encourages entrepreneurship, which creates jobs. Investors take great risk in putting their money into the stock market – sometimes they win and sometimes they lose. There must be some incentive for risking one’s money, and a preferential tax rate is one incentive. Taxing people who make more money is something the Internal Revenue Code (IRC) already does – but it distinguishes between capital gains and ordinary income, so those who make more pay less in taxes overall. What the U.S. really needs is an overhaul of the IRC. One solution might be that which Steve Forbes has mentioned – a flat tax rate of 17% for everyone with no tax taken on the first $46,000 of income for a family of four. The solution is not to take away the capital gains tax rate.
I agree that what this country needs most is a drastic overhaul of the Internal Revenue Code, but the question then becomes, what would that overhaul entail? Personally, I do not think a flat tax makes much sense given the complexity and variety of ways income is earned in this country. Rather, I believe the progressive system more accurately and effectively addresses the nuances of how income is earned.
As to your point about a lower capital gains tax spurring investment, given that the capital gains rate was lowered to 15% in only 2003, I find it hard pressed to believe that such a low rate has any practical effect on investment. In fact, this study (http://www.urban.org/publications/1000851.html) suggests that the capital gains tax rate has almost no effect on investment.
Of course nobody likes to pay taxes. That is a given. However, it seems inherently unfair and ineffective to tax passive income like capital gains at such low rates relative to actively earned income, especially when one considers how each type is earned.