Unearned income (Anything that is not labor income/salary) is nearly regarded as a sin in Korea. Highly negative connotation is associated with the word itself (불로소득, no labor income, 不勞), and therefore, high taxes are imposed. Media is inundated with endless articles saying that inequality is growing in Korea and the root cause is because unearned income is growing.
They keep saying that making money through sacred labor is desirable, and society in which capital income dominates is not a healthy society.
Is this really true?
First, the word “unearned income” is misleading.
First, income is not dichotomous as labor income versus unearned income. There are different types of incomes depending on the method, such as capital income, dividend income, interest income, inheritance and labor income. Lumping all of capital, inheritance, dividend, and interest incomes under “Unearned” income is not accurate.
All of these incomes are a by-product of creating value in different ways and in different forms, and it is absolutely wrong to define them as unearned income just because there is no physical labor involved.
Second, the idea of unearned income involving no efforts very wrong. Investing in assets such as stocks and real estate always carries a risk of capital loss, and requires efforts to study and learn about assets. The return on investment is the price you pay for taking risks, and is never meant to be free as some people say.
Third, unearned income is not unearned in the true sense. If money earns money, where did the first seed amount of money originate from? The first seed money was created through hard work and effort by someone. Even the money that was inherited was made through the efforts and labor of the predecessors. How is this considered unearned income?
Another issue that comes with associating negative words for capital gains is elderly poverty rate.
Why does Korea have the highest poverty rate for the elderly in the OECD?
There are several reasons why Korea’s elderly poverty rate is the highest in the world.
1) Not preparing for own retirement while spending heavily on children’s education
2) Those who have not had financial education, and hence, do not invest for retirement
3) Absence of financial products that generate steady income other than the national pension
The so-called unearned income is punished by paying high taxes, so how can those who are retired and unable to work make a living?
Only labor income is sacred and desirable. It sounds okay but this basically means that everyone has to work until death.
However, only passive income generated without labor can truly free us from endless cycle of labor. Labor income is meaningful in providing seed money and a starting point for generating other incomes.
Ironically, while unearned income is regarded as a sin and labor income is sacred, the labor income is also subject to very high tax rate in South Korea, 49.5% including local tax, which basically means that almost half of the money earned from work is taken away as tax for the highest earning income bracket.
If labor income is so sacred, shouldn’t the income tax rate be lower? The fact that the world’s highest tax rate is being applied to both labor and unearned income is hypocrisy, in which no one actually can be meaningfully rich and everyone has to work to survive even after retirement age.
A truly healthy society is not a society where people live only on labor income, but a society that provides many opportunities for people to live without having to work at a low tax rate.
The financial market and tax system are still unreasonable and heavily punishes capital related incomes in South Korea. The loss is reflected in the poverty, where there is no stable income after retirement.
There is a reason that South Korea has the highest poverty rate for elderly people.
Same article is written in Korean.
