Inheritance Tax Reform: Essential to Solving Youth Challenges

Young people’s hope is fading because of high inheritance tax rates. These days, when everything seems to be going up except wages, it has already been quite some time since life became so difficult for us. In this reality, for young people labeled the “N-po generation” because they have given up many things such as buying a home, marriage, dating, and childbirth, the assets their parents’ generation has steadily accumulated may be the very hope that allows them to dream of the future—a lifeline like the rope that appears in the folktale *Brother Sun and Sister Moon*. In the story, the siblings escape from the tiger by climbing the rope, but in reality, young people have no way to avoid the tiger called inheritance tax.

Inheritance tax is blocking young people’s asset formation. On top of the burden of inheritance and gifts, there are also high housing prices, low growth, and high inflation. In a situation where it is impossible to envision a secure future on salary alone, young people’s desperate efforts to somehow break through this reality have appeared in social phenomena such as all-in investing, the Bitcoin craze, and the Donghak Ant Movement. Some may view young people actively managing their assets in a positive light, but behind it may lie a struggle simply to survive in reality.

The contradictory phenomenon of companies being wary of rising stock prices is occurring because of excessive inheritance tax. Inheritance tax has been consistently criticized for dampening the investment sentiment of companies and owners, who should prioritize the interests of their firms above all else, and for contributing to the undervaluation of domestic stocks. Companies that ought to be valued based on performance and fundamentals are instead being swayed by high inheritance taxes.

If the inheritance tax system, which hinders the development of South Korea’s stock market and economy, remains as it is, Korean companies will not be able to escape the swamp of undervaluation. Moreover, from the perspective of owners intending to pass their businesses on to their children, it becomes a cause of encouraging expedient or irregular practices, and the harm from this will be passed on directly to young people who will one day seek employment at those companies.

Inheritance tax, which interferes with corporate management, also has a negative impact on young people’s employment. In Korea, the top tax rate reaches 60% when the shareholder premium tax is applied. Even large corporations struggle with business succession because of high inheritance taxes, so there is no need to mention companies that are smaller in scale. Representative cases in which excessive inheritance tax shook even the foundations of companies include Three Seven, Unidus, and Lock&Lock. Under these circumstances, it is not easy for companies to create quality jobs. Only by lowering inheritance tax can businesses be revitalized, and vitality return to the frozen job market.

The right to inherit private property must be guaranteed. The act of the older generation passing on a home for future generations to live in and bequeathing property is not something that must necessarily be regulated. In South Korea, which professes a free-market economy, if there has been no illegal conduct or any act outside the system in the process of forming property, then guaranteeing an individual’s right to pass on property and minimizing regulation would be the proper course for a rule-of-law state that protects the rights of each citizen. This would motivate individual economic activity and become a source of hope in helping young people build an economic foundation, enabling them to dream of a better future.

A necessary task for solving the problems facing young people is inheritance tax reform. Along with creating quality jobs through business revitalization, dramatic changes to the inheritance tax system must follow in order to help young people build assets and normalize South Korea’s undervalued stock market. As a young person living in the present, I too sincerely hope for a society in which the individual right to inheritance is protected.

Sang-yeop Kim

Researcher, Center for Free Enterprise (CFE)

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Original title: 청년문제 해결을 위한 필수과제, 상속세 개혁

Author: Sang-yeop Kim

Date: 2024-03-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26537