Gyunghoe Koo

ENGW3315
Christen Enos
Mar. 25, 2015

Response Letter
I would like to thank Huiying and Xihai for reviewing my first draft. My first draft
was quite rough but with your reviews and Christens comments, I could make my essay
stronger. Thank you so much for giving me advice for structure/organization and heading. I
was not used to using headings and did not think about it. After fixing my essay with your
advice, my essay looks more professional than before reviews.
I also thank Chun-Yuan and Wei. I would have submitted my essay with wrong
citations if you did not point it out. You solved some of wrong grammars in my essay as well.
It really helped me to build strong essay. Relationship among paragraphs also got much
smoother with your suggestions. I appreciate your time for reading my essay.

Context Note
It is a hypothetical proposal to the President of South Korea about an economic
policy. The party the President belongs to supports reduction of taxes on rich people because
they believe that the people put their money in businesses which causes job creation. I put a
cover letter for the President first and did not include abstract since it is supposed to be
proposal for the President only, not for a specific group of people. For background
information, the ruling party of Korea enacted a law lowering tax rates on the rich two years
ago, and currently the opposition party is blaming the law because it has not been effective as
intended; the law was supposed to encourage the rich, who have huge companies, to create
more jobs and recover Korean economy, but recession has gotten worse even after the law
enacted. At the last presidential election, the President declared some pledges and one of
them was better welfare system without increasing taxes. However, it is not easy to achieve
since Korea has been in recession for years; taxes for cigarettes went up and some other taxes
are about to be increased. I am trying to suggest increasing taxes on the rich as a more
efficient way to secure money for the welfare system.

Dear Ms. President,

Before I start to talk about Koreas economic policy, I would like to appreciate that
you decided to give me a chance to suggest a policy for my country. As one of the people
worrying recession of Korea, I am deeply interested in economic policies and willing to
contribute to the recovery of Korean economy from the recession. I prepared this proposal
with all my efforts believing that you will make a right decision for Korea. Thank you once
again for considering my suggestion.

Sincerely,

Gyunghoe Koo

A Little Tax Rate Increase for Effective Welfare and Equity

Introduction
Increasing taxes for better welfare is natural and reasonable to secure enough money.
The biggest reason why the law lowering taxes on the rich was enacted two years ago was
that the rich people are the ones who own their businesses and willing to invest their money
on them. It is true that the wealthy people do run successful businesses, not just domestically,
but even internationally. Therefore, Congressmen of the ruling party and supporters of the
party have insisted that the wealthy would invest their money for the businesses and the
investment would automatically accompany more jobs if they can save money from lowered
taxes. However, taxing on the wealthy will be more efficient than the current policy to secure
money for welfare; one percent increase of tax rate on a billionaire will bring millions of
additional taxes to the government which is worth more than a thousand times of 10 percent
tax rate increase on middle class. Besides, it will not negatively affect job creation as the
ruling party expected.
Effects Of Taxes On The Rich For Job Creation
There are many economists and politicians in the world, not only in Korea, believing
that rich people are the ones who create jobs and taking care of economic growth and
stabilization. Almost all of the most successful businesses are multinational and they have a
lot of branches or factories in the world. With them, they are creating major number of jobs in
this globalized society. Miron Wolnicki, who is a professor of Villanova University, is one of
them. He wrote in his essay, Restoring pragmatism in American governance that increased
taxes on the rich make the economy fail. Instead, he claims that deregulation of the financial
services sector is beneficial for the economy and the capital gains of the rich investors, not

household savings were needed to create new jobs, the tax cuts on the top income and
inheritance were necessary (Wolnicki). According to him, the US economy was damaged by
the governments tax system when the tax rates on the rich were higher. Therefore, the lower
tax rates on the wealthy, the more jobs created; it is led to growth of economy. The theory
was valid when Korea started to grow up in 1960s and it helped Korean economy to grow up
fast at that time. However, the opinion has a big hole in its logic considering current
economic situations.
Former US Labor Secretary Robert Reich points out inefficiency of lowering taxes
on the rich through a documentary film, Inequality for All. He says that the 400 richest
people in the country have recently accrued the same measure of wealth as the poorest 150
million (Reich). It means the gap between the top and the bottom is becoming larger and the
system in the US does not help to reduce it. He introduces a CEO of a pillow company who is
earning millions of dollars per year, to support his opinion. The CEO confesses that, a little
increase of tax rate does not really affect his decision on investing money to his business. He
also says that even though he is earning hundreds of times of average income, he does not
buy, for example, hundreds of jeans; he only needs several jeans just like middle class. In
addition, the rich has a trend of saving more portion of their income than low-income class or
middle class. Karen E. Dynan, the main author of Do the Rich Save More? proves in his
article that higherlifetime income households save a larger fraction of their income than
lower-income households (Dynan et al.). According to him, even if burden of tax is reduced
from wealthy people, a little part of the money from lowered taxes might be used to create
jobs, but most of the money will be saved and slows down the economy.
How Tax System Is Really Working
There is another influential person who showed how serious the problem of low

taxes on wealthy people. Several years ago, Warren Buffett, one of the most successful and
the richest CEOs, revealed that he has paid less percentage of income tax than his secretary
does. He insisted to raise taxes on the rich like himself. The US President Barack Obama
accepted his request and made a law named Buffett Rule which makes people earning
income more than certain amount pay at least same percentage with other people. The
lowered taxes on the rich does not work as purposed, but just work in making the gap
between the poor and the rich wider. The main purpose of welfare system is supposed to be
supporting low income, middle class and reducing the gap with the rich. In the US, Warren
Buffett and Bill Gates formed a new club named The Giving Pledge for billionaires to
contribute to solve this problem. To join the club, it is necessary to join the Giving Pledge
that you promise 50 percent of your net worth either in your life time or in your will
(Rose). More than one hundred of billionaires already joined this club and it proves that many
people, even who have benefitted from the tax system acknowledge its problem.
There is a different opinion emphasizing the importance of lower taxes. Thomas
Sowell, who is an American Economist supporting free market economics, insisted that tax
revenue went up although tax rates went down in 1920s. He mentions that the number of
individuals reporting taxable incomes of a million dollars or more rose again to 207 by 1925
from 21 in 1921 (Sowell). According to him, it happened because many people tried to avoid
paying due to high tax rates in 1921, but they stopped avoiding after tax rates decreased. It
might have happened to some people; however, it cannot be confirmed as the only major
reason. Before the Great Recession, 1920s was one of the most prosperous periods in the US.
Therefore, the increased number of millionaires can simply mean that more people got richer
and more millionaires appeared. He tried to jump into the conclusion too fast.

A Huge One Percent, A Small Ten Percent

Raising taxes on the rich is also more efficient than other ways to secure money for
better welfare system. Even though one of the presidential election pledges was better
welfare without additional taxes, it has not been implemented as supposed: cigarette price
increased about two dollars and most of them are taxes; taxes on alcohol are to be raised;
increase of residence tax and car tax is being discussed in Congress. The problem of those tax
increases is that they directly affect low-income class and middle class rather than the
wealthy. As mentioned in Inequality for All, wealthy people do not smoke 50 packs of
cigarettes a day. Two-dollar-increase of cigarette price does not make billionaires pay more
than the low-income class. When the two dollars turn into percentage, however, it obviously
shows how different burden people feel from it; for a person earning $ 50,000 annually, two
dollars is 1.44% of daily income, but for a person earning $ 30,000,000 annually, 0.0024%.
On the other hand, one percent of tax rate increase for a billionaire will bring
millions of taxes to the government while hundreds of thousands of middle class need to pay
taxes with ten percent higher rate for the similar amount. A German economist, Beznoska S.
Bach insists in his research that wealth taxation could raise a substantial amount of revenue,
even if high personal allowances target the tax to those in the top percentiles of the wealth
distribution (Bach et al.). It is proved in one of the most developed countries, Germany. He
also points that it is mainly the rich who have gained from reduced taxation over the past
few decades in most countries (Bach et al.) and it is time for them to pay extra taxes for the
country. In addition, the tax will bring social benefit and equity to Korea; Johann Brunner and
two other economists say that a nonlinear wealth tax would allow even higher social welfare
by a more differentiated treatment of the individuals, that is, by performing more
redistribution (Brunner et al.) in their article put in Journal of Economics. With data and

equations, their opinion is well proved.

A New Step for the Future
Capitalism has been proved as the most efficient system so far with infinite potential
after Soviet Union collapsed with Communism. However, efficiency usually accompanies
problems of equity. Since the end of Korean War, South Korea has rapidly grown up
economically with capitalism but the gap between the poor and the rich has been increasing
as well. Even though increasing taxes on rich people has always been a sensitive problem and
the US has had a similar problem with Korea, there are moves to overcome the problem in
the US. Warren Buffet revealed the secret of inversed tax rates even though he is the person
who has benefitted by them and the President of the US, Barack Obama accepted his idea and
applied it into a new law increasing tax rates on the rich. Robert Reich points out the problem
in the US although he is blamed as a communist and even billionaires who have been
benefitted are willing to practice noblesse oblige. In German, increased taxes on the rich has
been in effect and proved to be an effective source of high revenue for the government. It
would not be easy to start increasing taxes on the rich in Korea, but it is time to begin the first
step to be a better country with establishing tax systems benefitting not only a few but more
than a half of people who belong to either low income class or middle class.

Works Cited
Bach, S., Beznoska, M. and Steiner, V. (2014), A Wealth Tax on the Rich to Bring Down
Public Debt? Revenue and Distributional Effects of a Capital Levy in Germany. Fiscal
Studies, 35: 6789. doi: 10.1111/j.1475-5890.2014.12023.x
Blackburn, Robin. "How to Tax the Rich." Dissent Summer 2007: 63-7. ProQuest. Web. 25
Mar. 2015 .
Brunner, Johann, Paul Eckerstorfer, and Susanne Pech. "Optimal Taxes On Wealth And
Consumption In The Presence Of Tax Evasion." Journal Of Economics 110.2 (2013):
107-124. Business Source Complete. Web. 25 Mar. 2015.
Dynan, Karen E., Jonathan Skinner, and Stephen P. Zeldes. "Do The Rich Save More?."
Journal Of Political Economy 112.2 (2004): 397-444. Business Source Complete.
Web. 24 Mar. 2015.
Inequality for All. Dir. Jacob Kornbluth. Perf. Robert Reich. 2013. RADiUS-TWC.
Rose, Charlie. "The Giving Pledge: A New Club For Billionaires." 17 November 2013. CBS.
15 March 2015.
Sowell, Thomas. Trickle Down Theory and Tax Cuts for the Rich. Stanford, CA, USA:
Hoover Institution Press, 2012. ProQuest ebrary. Web. 18 March 2015.
Wolnicki, Miron. "Restoring Pragmatism in American Governance." International Journal of
Social Economics (2012): 490-502.