Korea offers meager tax benefit to families with children

Korea offers meager tax benefit to families with children. April. 18, 2016 07:37. by 세종=신민기기자 minki@donga.com.

It has turned out that the tax burden difference between Korean households with kids and single households is the fifth lowest among the 34 member countries of the Organization for Economic Cooperation and Development. The narrow gap in tax burden means that the government should pay more attention to families with kids by providing tax credits and other means.

According to the OECD’s Taxing Wages 2016 report, the tax wedge of Korea, the proportion of taxes and social security expenditure in income, for families with one earner and two kids was 19.6 percent, 2.3 percent lower than that of single households with 21.9 percent. This is the fifth lowest among the 34 OECD members.

In the case of Luxembourg, on the other hand, the tax wedge of one-earner household with two children stands at 15.9 percent, 22.4 percentage points lower than that of single household with 22.4 percent. The U.S. was 11.0 percentage points lower than that of Korea, Japan 5.4 percentage points, the U.K. 4.5 percentage points. Only Turkey and Greece turned out to have smaller differences in tax wedges with 1.4 percentage points and 1.2 percentage points, respectively, while Mexico and Chile had identical tax wedge with Korea.

It is analyzed that Korea had smaller gap in tax wedges between families with and without kids because the country offers fewer tax benefits and grants for married couples and couples with kids. “Considering the tax rate of the entire households in Korea, the tax scheme should be modified in a way that couples with children have lower tax burden than single households,” Kim Jae-jin from the Korea Institute of Public Finance said.