Shrinking the Economy Instead of Raising Tax Revenue, Inviting a Fiscal Crisis

The Left’s Trademark Is Raising Tax Rates

Securing Money for Handouts Ends Up Ruining the Country

Hit by a Tariff Wave and Then Struck Again

Corporate Tax Increases That Undermine Market Vitality Must Be Reconsidered

The government has officially announced a corporate tax rate increase ahead of the 2026 tax law revision.

Its plan is to raise the top rate to 27.5% (including local taxes).

The stated justification is tax equity and securing tax revenue.

But it cannot be assumed that a tax rate increase will necessarily lead to higher tax revenue.

Its ripple effects on the broader economy must also be examined.

■ Tax Revenue May Actually Decline

If the corporate tax rate rises, tax revenue may actually fall instead.

From a company’s perspective, when the tax burden increases, it will likely postpone investment plans or scale down business operations in order to cut costs.

If profits decline, the taxes paid will naturally decrease as well.

A policy of raising tax rates, far from expanding revenue, can end up weakening the fiscal base.

■ Decline in Tax Competitiveness

Another problem with raising corporate taxes is the erosion of tax competitiveness.

Global companies move in search of countries with lower taxes.

If many countries maintain lower tax rates than Korea, the country’s attractiveness as an investment destination for our firms will inevitably decline in relative terms.

At a time when major countries are seeking to attract investment by cutting corporate taxes, raising them is a choice that runs against the global trend.

■ Employment Will Contract

It will also place pressure on the job market.

As corporate taxes rise, companies will limit new hiring or choose workforce restructuring in order to reduce labor costs.

This leads to worsening youth unemployment and fewer orders for small and medium-sized partner firms, thereby contracting employment.

A corporate tax increase harms not only businesses but the labor market as a whole.

■ The Economic Environment Will Weaken

A policy aimed at collecting more taxes worsens the business environment.

It creates anxiety among companies and investors, making them more passive in management planning and investment.

This leads to stagnant income, and consumers, too, cut spending out of concern for the future.

In this sense, a corporate tax increase is not merely a numerical adjustment, but a policy that brings negative ripple effects across the entire economy.

■ If the Market Grows, Tax Revenue Will Also Increase

The government must recognize squarely that restoring the market’s function is the solution to expanding tax revenue and the fundamental answer to economic problems.

When market vitality grows, business investment and employment increase, and consumption naturally rises as well.

To keep public finances sound and make welfare sustainable, the government must first create conditions in which business activity can take place freely.

This is not the time to look for ways to collect more taxes, but to seek ways to revive the market.

Only when companies are active and profitable can the economy recover and taxes be paid.

Conversely, policies that shrink business activity reduce the very tax base itself.

The priority is to create an environment in which companies can invest actively and earn profits.

■ Reconsider Raising Corporate Taxes

A corporate tax increase should be reconsidered.

What is needed now is not to raise tax rates, but to make the market function dynamically.

Rather than putting forward a determination to collect more taxes, the government should first clear the way for greater investment.

I hope the government will concentrate its policy capacity on creating a business-friendly environment.

Sung-no Choi

President, Center for Free Enterprise (CFE)

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Original title: 세수 늘기는커녕 경제만 위축시켜 재정 위기 자초

Author: Sung-no Choi

Date: 2025-07-31

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27944