By Jay Kim
The Bush-era tax breaks are scheduled to expire at the end of this year, and finding alternatives has been a tough situation for President Barack Obama, the man who proposed allowing these tax breaks for the nation’s wealthiest households to expire.
Congressional Republicans have vowed to fight to preserve the tax breaks for all Americans, rich or poor, and many conservatives are demanding that all Bush-era tax cuts be made permanent. There doesn’t seem to be a simple solution to this politically sensitive issue, with only a month until the mid-term elections.
The Republicans and Democrats differ significantly on this issue. Republicans claim that excluding the rich from the tax cuts would create a class war between the rich and poor in America. They claim that during these hard economic times, instead of raising taxes, the government should reduce taxes and spending so that the increased income and capital can be used as the source of economic growth.
The Democrats, on the other hand, claim that it’s time to create another strong government-backed economy stimulus plan, solely funded by uncut tax monies from those in the $250,000 and above annual income tax bracket, in order to pull the country out of the recession.
The current U.S. government deficit stands at almost $20 trillion. The interest alone amounts to $250 billion, or the entire 2011 budget for the Korean government. It seems like just yesterday when the Obama administration had implemented their first $787 billion economic stimulus plan, and now the administration is talking about another stimulus plan paid for by taxing the rich.
The Tea Party Republicans are furious with this idea, and the Nobel economists are also sharply divided over the issue. Niall Ferguson of Harvard claims that without reducing the financial deficit, the interest alone might be enough to dry up the money in the market; by contrast, Princeton’s Paul Krugman claims that jobless rates should be lowered even by increasing the deficit.
According to recent public opinion polls, 54 percent of Americans are agreeable to raising taxes only for the rich. The public was not always in favor of this idea; one might speculate that the bonus parties for Wall Street executives during the financial meltdown have caused them to change their minds.
Everyone, however, agrees that the deficit’s growth needs to be stopped; the issue of raising taxes to do so continues to be a hot-button issue. It’s not clear how this debate will be reflected in the coming November elections.
There is a saying in American politics ― if it’s hard to make a decision, either form a committee to buy some time, or come up with a compromise that neither side would object to strongly. Therefore, a compromise has been reached; the Bush tax cuts will be extended for one year, instead of Speaker Nancy Pelosi’s idea to postpone the matter until the November elections.
How does this affect Korea? Since 80 percent of the Korea economy depends on international trade (compared to 70 percent of the U.S. economy depending on domestic consumption), the trade surplus of big corporations is very important in boosting the economy, and quite a few small businesses depend on those corporations’ subcontracts. There is a poll in Korea showing that 70 percent of Koreans think that the difficulties of small businesses are caused by big businesses.
President Lee Myung-bak has said that the public would look at big businesses with a different eye if they saw the efforts of those businesses to grow together with small businesses, and that he would give unreserved support to this mutual growth through fair laws. Since most people agree with this, it is expected that this mutual growth and a fair society will be important Korean social tasks.
However, the debates on small government and the national debt still continue in the U.S., and the debates on taxes are still raging on. I am affiliated with the Republican Party, and I have strongly objected to the unconditional wealth distribution policies of the government, which tend to give the money of the rich to the poor.
However, these days I have changed my opinions significantly, and in these troubled times I think both Obama’s policy of taxing the rich and President Lee’s emphasis on big businesses supporting small businesses are both right. That’s why I’m recommending that Korea adopt a policy like the U.S.’s policy of setting aside government projects for only small businesses to make bids on.
The will of the government to achieve a fair society, along with the idea of mutual growth in business, make me sure of a bright future for the Korean economy.
Jay Kim is a former U.S. congressman. He serves as chairman of the Washington Korean-American Forum. For more information, visit Kim’s website (www.jayckim.com).