[fn Editorial] Reconsider the Tax Reform Plan Disconnected from the Stock Market

The debate over the government's tax reform plan is intensifying. Among them, the plan to lower the major shareholder standard for capital gains tax on stocks from the current 5 billion won to 1 billion won is a hot potato. It is said that there are conflicting opinions within the Deobureo Minjoo Party. There is also much discussion about the effectiveness of lowering the highest tax rate for separate taxation on dividend income. Tax reform is complex, making it difficult to reach a conclusion that everyone agrees on. Therefore, tax reform must have a clear purpose and be designed to function properly in the market.

First, the plan to strengthen the major shareholder standard is causing confusion from the purpose setting stage. The government says it will lower the current 5 billion won standard to 1 billion won to ensure tax equity. However, this policy contradicts the activation of the stock market. It would be ideal to achieve both tax equity and stock market activation, but it is practically impossible. Lowering the standard may lead to investor withdrawal and market stagnation.

The government has set 'KOSPI 5000' as a national goal and is seeking stock market stimulus measures. However, if the major shareholder standard is strengthened, dissatisfaction with investment returns may increase, leading to a backlash that prevents investment funds from flowing into the stock market. It is believed that this issue is behind the recent sharp drop in the KOSPI index immediately after the announcement of the tax reform plan. The plan to strengthen the major shareholder standard has such contradictions, and this is why there are strong opposing voices within the Minjoo Party.

The same goes for separate taxation on dividend income. The government is promoting a shareholder return policy using high dividends as an incentive. It is well known that the U.S. stock market is activated by dividends and individual investors are increasing. For the advancement of our stock market, a policy to activate dividends is the right direction. However, not many people predict that the dividend propensity will increase just because the highest tax rate is set at 35%. It is said that it is difficult to expect a substantial incentive effect with only a 35% highest tax rate.

In this regard, a domestic securities company argued that the highest tax rate for separate taxation on dividend income should be lowered further to 25%. They claim that it is difficult to change the propensity of major shareholders who hold the key to dividends with only a 35% highest tax rate. Of course, if the highest tax rate is excessively lowered, it may cause problems in securing tax revenue. Efforts are needed to find an appropriate balance that can balance dividend activation and tax revenue security.

Tax reform is not an absolute value of ideal justification. The policy's meaning can be preserved only if it functions normally in the market and achieves its goals. If a tax plan pursued for the purpose of realizing tax justice reduces economic vitality, it may result in gaining little and losing much. Discussions on the tax amendment must be clear from the goal setting stage, and when goals conflict, more important values should be prioritized. There is not much time left to prepare a compromise before it is passed in the National Assembly plenary session and finally implemented. The best reform plan that approaches the goal while also fitting reality must be prepared.