ID :
206147
Fri, 09/09/2011 - 02:30
Auther :
Shortlink :
https://www.oananews.org//node/206147
The shortlink copeid
Trickle-up economy Benefitting the poor, small firms to power economy
MBnomics theoretically makes sense, but has not been proven to be effective.
President Lee Myung-bak believed tax cuts for conglomerates would create jobs and narrow the income gap. This did not happen. He also assumed that a tax cut for the rich would stimulate consumption, and part of the benefits would trickle down to the less wealthy and the poor. This would ease the income gap.
Lee's ambitious 747 economic plan ??? 7 percent growth with the goal of doubling per capita income to $40,000 and joining the G7 economy ??? only raised the bar of public expectation.
The economy has been growing below the potential growth rate of 4.5 percent. This record may be some consolation in view of the unprecedented global financial crisis. Inflation is outgrowing the GDP rate.
The trickle-up effect is more convincing than the trickle-down effect. Benefitting the poor directly or small- and medium-sized enterprises (SMEs) will improve the productivity of society and those benefits will trickle up to help the wealthy.
If the poor and the less wealthy enjoy tax breaks or subsidies, they will spend the increased funds at a rate higher than the rich. Richer individuals do not spend their total income and save much of their earnings.
Conglomerates retain much of their earnings without reinvestment. Their earnings fail to provide a trickle-down effect of reducing the jobless rate and helping subcontractors.
The decision to end tax cuts to big businesses eroded corporate trust in Lee's economic philosophy and left foreign investors puzzled over Seoul's consistency. It is a reflection of the prevailing skepticism over the trickle-down effect. Why should large enterprises and the rich enjoy tax reductions when the party is only for them?
As a way of maximizing the trickle-up economy, the Lee administration has begun a rollback policy. Tycoons will face inheritance tax when they create new units as a way of transferring wealth to their offspring. Conglomerates are under pressure to scrap maintenance, repair and operating (MRO) businesses for SMEs. Regulators jawbone them for squeezing subcontractors. SMEs will enjoy an exemption for inheritance tax when they keep the number on their payrolls 20 percent above the current level for at least a decade.
Conglomerates are less effective than SMEs in generating new jobs, which account for 99 percent of the number of companies and 88 percent of all jobs.
The government has yet to reintroduce a system of barring large companies from encroaching upon the business areas exclusive for SMEs.
The Lee administration needs to introduce additional measures to maximize the trickle-up effect through tax cuts and exemptions for workers and SMEs.
The economic priorities should be increasing jobs, investment and consumption. This is a solution to ease polarization and rebalance export and non-export sectors. Proponents of the trickle-up economy are growing both at home and abroad.
President Lee Myung-bak believed tax cuts for conglomerates would create jobs and narrow the income gap. This did not happen. He also assumed that a tax cut for the rich would stimulate consumption, and part of the benefits would trickle down to the less wealthy and the poor. This would ease the income gap.
Lee's ambitious 747 economic plan ??? 7 percent growth with the goal of doubling per capita income to $40,000 and joining the G7 economy ??? only raised the bar of public expectation.
The economy has been growing below the potential growth rate of 4.5 percent. This record may be some consolation in view of the unprecedented global financial crisis. Inflation is outgrowing the GDP rate.
The trickle-up effect is more convincing than the trickle-down effect. Benefitting the poor directly or small- and medium-sized enterprises (SMEs) will improve the productivity of society and those benefits will trickle up to help the wealthy.
If the poor and the less wealthy enjoy tax breaks or subsidies, they will spend the increased funds at a rate higher than the rich. Richer individuals do not spend their total income and save much of their earnings.
Conglomerates retain much of their earnings without reinvestment. Their earnings fail to provide a trickle-down effect of reducing the jobless rate and helping subcontractors.
The decision to end tax cuts to big businesses eroded corporate trust in Lee's economic philosophy and left foreign investors puzzled over Seoul's consistency. It is a reflection of the prevailing skepticism over the trickle-down effect. Why should large enterprises and the rich enjoy tax reductions when the party is only for them?
As a way of maximizing the trickle-up economy, the Lee administration has begun a rollback policy. Tycoons will face inheritance tax when they create new units as a way of transferring wealth to their offspring. Conglomerates are under pressure to scrap maintenance, repair and operating (MRO) businesses for SMEs. Regulators jawbone them for squeezing subcontractors. SMEs will enjoy an exemption for inheritance tax when they keep the number on their payrolls 20 percent above the current level for at least a decade.
Conglomerates are less effective than SMEs in generating new jobs, which account for 99 percent of the number of companies and 88 percent of all jobs.
The government has yet to reintroduce a system of barring large companies from encroaching upon the business areas exclusive for SMEs.
The Lee administration needs to introduce additional measures to maximize the trickle-up effect through tax cuts and exemptions for workers and SMEs.
The economic priorities should be increasing jobs, investment and consumption. This is a solution to ease polarization and rebalance export and non-export sectors. Proponents of the trickle-up economy are growing both at home and abroad.
