2024-08-05 05:22:37
[돈의 심리] There are many ‘intellectual fraudsters’ who distort the logic of world-class economists and suggest raising wealth tax
There are ongoing debates in Korea about real estate taxes, wealth taxes, etc. There are many different arguments about whether these taxes should be raised or lowered. However, when discussing these issues, there are cases where the legitimacy of taxation is asserted based on ‘Progress and Poverty’ by American economist Henry George, and ‘Capital in the 21st Century’ by French economist and Paris School of Economics professor Thomas Piketty. I find these arguments a bit difficult to understand.
Henry George Raises Property Taxes
In his famous book, Progress and Poverty, George argued that real estate taxes should be raised. The reason for his argument was clear. He believed that real estate rents were sucking up all the surplus in society. If you do well in business or in business and make a lot of money, real estate rents will also rise. If society becomes richer, housing prices and building prices will rise. In the end, no matter how much money you make elsewhere, it is useless. Those who own real estate will take all the profits. That is why George argued that all of this unearned income from real estate should be collected as taxes. People who argue that real estate taxes should be raised cite George’s logic of Progress and Poverty.
But there is one more thing that is argued in ‘Progress and Poverty’. All taxes except for the real estate tax should be abolished. George was against the fact that people’s decision-making was changed by government policy. If an income tax is imposed, people will work less. If a consumption tax is imposed, people will consume less. He argued that taxes that affect economic activity in this way are bad and should all be abolished. The real estate tax has a minimal effect on economic activity. Therefore, George argued that the real estate tax should be raised and all other taxes should be abolished.
I was also convinced by the logic while reading ‘Progress and Poverty’. As George said, if we abolish all other taxes and collect all real estate rents as taxes, it will definitely be a better society. I agree with George’s argument. But there is something strange. Those who quote George’s argument only say that real estate taxes should be raised. They do not mention George’s argument that other taxes should be abolished. It is not even mentioned briefly somewhere in a corner that all other taxes should be abolished. The book ‘Progress and Poverty’ presents two arguments very explicitly. One is that real estate taxes should be raised, and the other is that all other taxes should be abolished. However, those who bring George in only say that real estate taxes should be raised.
And the real estate tax that George mentioned is, after all, a possession tax. George was most opposed to taxes affecting economic activity. According to George, the real estate transfer tax and acquisition tax that affect real estate transactions are also taxes that should be abolished. In other words, those who agree with George’s argument regarding the real estate tax should also oppose the imposition of the real estate transfer tax and acquisition tax that have a major impact on the Korean real estate market. However, they do not say anything like that and only talk about raising the real estate tax.
There are two ways. One is to quote only what George said about raising real estate taxes without reading George’s book. Or, one is to read George’s book but pretend not to know the overall argument and quote only the parts that he wants to argue. People who mention George and only say that real estate taxes should be raised without mentioning that all other taxes should be abolished and that transfer taxes and acquisition taxes should be abolished seem like intellectual frauds to me.
Piketty’s controversial wealth tax logicPiketty’s ‘Capital in the 21st Century’ was published in 2013, but it has already become a classic economics book. In this book, Piketty advocated a wealth tax. He suggested that the wealthy should be taxed on their assets. Piketty’s argument that this wealth tax, or so-called wealth tax, should be imposed has caused great controversy worldwide, and ‘Capital in the 21st Century’ clearly presents the logic that wealth taxes should be imposed on assets. Piketty discovered that the ‘r > g’ relationship has been established historically in all societies. r is the rate of return on capital, and g is the economic growth rate. In other words, the rate of return on capital is greater than the economic growth rate. Here, the relationship ‘return on capital > economic growth rate > return on labor’ is established. The important thing is the ‘return on capital > return on labor’ relationship. It means that people with capital always earn more money than those who work. The fact that money makes money and the rich become even richer is derived from this relationship. This is also why the gap between the rich and the poor is widening in society. Since those with assets are making money much faster, those without assets cannot keep up no matter how hard they work to make money. This is unfair. However, this is something that naturally occurs in the economic phenomenon of ‘return on capital > return on labor.’ Therefore, the government should intervene and lower the return on capital. If the return on capital is lowered by imposing a wealth tax or a tax on the rich, and as a result, the return on capital and the return on labor become similar, the gap between the rich and the poor, which is the biggest economic problem in modern society, can be solved.
In ‘Capital in the 21st Century’, Piketty also explains what level the wealth tax should be. The problem is that the rate of return on capital is higher than the rate of return on labor. So the rate of return on capital should be similar to the rate of return on labor. The rate of return on capital has historically been 4-5%. In modern societies with developed capital markets, it is around 3-4%. In modern societies, the rate of return on labor is around 1-2%. So the wealth tax should be 1-2%. Therefore, the wealth tax proposed by Piketty is 0% for net assets less than 1 million euros (about 1.5 billion won), 1% for net assets between 1 million euros and 5 million euros (about 1.5 billion won to 7.5 billion won), and 2% for net assets over 5 million euros (about 7.5 billion won).
In Europe and the United States, Piketty’s argument caused an uproar. Opposing arguments were raised, such as whether it is right to tax wealth rather than income, and that imposing a 1-2% tax on wealth is too much. On the other hand, there were many arguments that this wealth tax is necessary and that a 1-2% tax on the rich is not that much of a burden. The wealth tax that Piketty ignited is still controversial in terms of its validity and effectiveness.
There are many people in Korea who argue that a wealth tax is necessary based on Piketty’s argument. However, there is something strange. Piketty suggested a 0% rate for net assets under 1.5 billion won, 1% for 1.5 billion won to 7.5 billion won, and 2% for 7.5 billion won or more. But what is the tax rate on property in Korea? First of all, the acquisition tax rate is 4%, and the property tax rate is 0.4%. The comprehensive real estate tax is over 1% for houses over 1.2 billion won, and 2% for land over 4.5 billion won. Also, in Korea, regional health insurance premiums are based on property. It is a type of property tax. Above all, the inheritance tax or gift tax on property is 20% for over 100 million won, and 50% for over 3 billion won. Piketty’s wealth tax is levied once a year, and even if you take that into account and calculate lifetime property tax, the tax levied on property in Korea is much higher than the level Piketty claims. There has been recent discussion about lowering the inheritance tax to 40%, but that still doesn’t change the fact that it is higher than the level Piketty mentioned.
According to Piketty’s logic, Korea’s wealth tax should be reduced
According to Piketty’s logic, Korea should reduce taxes on the rich, not increase them. However, strangely, there is no argument that Korea’s property tax should be reduced because Korea’s property tax is much higher than the wealth tax suggested by Piketty. It is simply an argument that taxes on property should be increased since Piketty’s wealth tax argument is reasonable. Whenever I hear such an argument, I feel very puzzled. Korea already has much higher property taxes than Piketty claims, so why do they say that property taxes should be increased while citing Piketty’s argument as their argument? Are they talking without even reading the book, or are they intentionally ignoring Piketty’s argument on how much wealth tax should be imposed? Or are they completely ignorant of Korea’s tax system?
When arguing that taxes should be raised or lowered, you can argue with some logic. However, if there is someone who argues that taxes should be raised based on Georgina Piketty’s argument, I look at them with great suspicion. I suspect that they have not read the book, or that they are an intellectual fraud who intentionally distorts the author’s argument.
Dr. Choi Seong-rak…
He graduated from Seoul National University’s Department of International Economics, received a doctorate in public administration from Seoul National University’s Graduate School of Public Administration, and a doctorate in business administration from Seoul Science and Technology University. He worked as a professor of business administration at Dongyang Mirae University, and after making 5 billion won in assets through investments in 2021, he retired and is now a member of the FIRE tribe.
[이 기사는 주간동아 1451호에 실렸습니다]
Seongrak Choi, Ph.D. in Business Administration
2024-08-05 05:22:37