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"Reunification" Tax Proposed for the Koreas

Kelly Phillips ErbAugust 15, 2010

In 1945, following the end of World War II, Korea was divided into two parts: the then-Soviet occupied North and the American-occupied South. Both Koreas claimed the entirety of the Korean peninsula as their own and the two went to war in 1950. The Korean War would last three years and would result in the deaths of more than a million people including estimates that as a many as two million civilians were killed.
An armistice was signed in 1953, stopping the fighting but leaving the Koreas divided into North Korea and South Korea. No formal peace agreement was ever signed so technically, the two countries remain at war. Tensions have remained high between them; North Korea has very limited relationships with most governments in the world, leading some to refer to it as the “most isolated country in the world.”
Of course, due to the passage of time, the details of what actually brought the two countries to blows that have lingered for so long are subject to debate. My generation largely remembers the Korean War through the fictional eyes of Captain Hawkeye Pierce and Corporal O’Reilly from M*A*S*H. The generation that followed knows only of the fierce rhetoric perpetuated by both sides, with former President Bush infamously referring to North Korea as part of the “axis of evil.”
What is clear, sixty years later, is that the countries remain divided. Despite the strained relationship between the two countries, many are still hopeful for a reunification similar to what happened in Germany. Among those apparently pulling for a reunification is South Korean President Lee Myung-bak. Earlier today, Lee Myung-bak proposed a “reunification tax” to help fund the cost of reunification. The price tag on a reconciliation? About 1 trillion dollars.
There’s been no side of softening between the two countries especially with rumors that North Korea’s President, Kim Jong-il, has been attempting to build a nuclear weapons program. Yet, there is still optimism. Speaking at a ceremony commemorating Korean liberation from the Japanese, Lee Myung-back said, “Reunification will definitely come.”
He’s not alone. A majority of South Koreans favor reunification, despite the cost. The South Korean economy is much more robust than that of the north and the cost of a reunification could have massive economic consequences (just ask Germany). To deal with the costs, the reunification tax would likely be a 2% increase for South Koreans over (get ready for this) 60 years.
Exactly how much economic aid other countries, like the US, would provide is uncertain. But the fact that there is a very public discussion about the predicted costs of reunification gives many hope that it’s coming. If South Korea’s economy can withstand the burden of the additional tax, maybe a reconciliation will be sooner than we think.

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Kelly Phillips Erb
Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.
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One thought on “"Reunification" Tax Proposed for the Koreas”

  1. Ralph Lee says:
    August 17, 2010 at 3:47 pm

    If I remember correctly, Germany’s reunification tax was much higher than 2%. And if the Germans are any indication, the South Koreans will be delighted to pay that for the promise of a unified Korea.
    Having said that, I hope the South Koreans realize the how long the process of reunification will take. While I was in Berlin two weeks ago, I was surprised at the apparent poverty of much of the Eastern side of the city–20 years after the fall of the wall. Nice highways don’t immediately translate into nice neighborhoods. And East Berlin was probably one of the most prosperous cities in the Eastern Bloc..

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