Increasing taxes with economic growth in mind: Prerequisites for a long-term increase (KOR)
Headline: Kospi Takes a Hit as Tax Reforms Dampen Investor Confidence in Korea
The South Korean stock market, known as the Kospi, experienced a significant drop on Aug. 1, closing at 3,119.41 points - a decrease of 3.88 percent from the previous trading session. This was reported by YONHAP and displayed on a screen in Hana Bank's trading room in central Seoul.
The decline came after the announcement of the Lee Jae Myung administration’s tax reform package, which includes measures such as raising the corporate tax rate, expanding capital gains tax scope for major shareholders, increasing securities transaction tax, and introducing a higher top rate on dividend income. These changes have been viewed as contradictory to the government's previous promises to usher in a "Kospi 5000 era".
Meanwhile, across the Pacific, the U.S. House of Representatives passed the One Big Beautiful Bill Act. Despite misgivings within Trump's party over concerns about increasing the national debt and affecting the social safety net, the bill was signed into law. However, the impact of this legislation on the global economy, including the South Korean market, was not directly addressed in this paragraph.
Professor Cho Won-Kyeong, head of the Global Industry-University Cooperation Center at UNIST, views the recent U.S. tax bill and the Korean government's tax reforms as contrasting influences on their respective stock markets. She notes that while the U.S. legislation, termed “One Big, Beautiful Bill Again”, includes large-scale tax cuts and government spending reductions with a moderate positive effect expected on the S&P 500 earnings yield, Korea's stock market reacted negatively amid its own tax reform proposals for 2026.
Specifically regarding the Korean stock market, Cho highlights that after a strong rally over two months that boosted the Kospi by more than 20 percent towards an all-time high, the market sharply corrected following the announcement of the tax reform package. She attributes this correction to the increased tax burdens on corporations and shareholders, which have dampened investor sentiment.
Elsewhere, Elon Musk's criticism of the One Big Beautiful Bill Act has led to a fracture in a key relationship. Additionally, U.S. House Speaker Mike Johnson displayed the vote tally on the House of Representatives floor for the tax bill. However, no information was provided about the impact of the 'big beautiful bill' on the global economy or any other country.
In summary, Professor Cho interprets the U.S. tax reforms as moderately supportive for the U.S. stock market earnings yield but contrasts this with Korea’s tax policy, which appears to have negatively impacted the Kospi by undermining investor confidence through increased tax burdens on corporations and shareholders.
- The negative impact on the Kospi, following the announcement of the Lee Jae Myung administration’s tax reform package, has been attributed to increased tax burdens on corporations and shareholders, which have dampened investor sentiment.
- In contrast, the U.S. legislation, termed “One Big, Beautiful Bill Again”, includes large-scale tax cuts and government spending reductions, with a moderate positive effect expected on the S&P 500 earnings yield.
- Across the Pacific, the U.S. tax bill and its potential impact on the global economy, including the South Korean market, was not directly addressed in the given paragraph.
- Professor Cho Won-Kyeong, a head of the Global Industry-University Cooperation Center at UNIST, views these contrasting influences on their respective stock markets as a significant factor.
- The South Korean government's tax reform proposals for 2026 and changes in U.S. tax laws have been subjects of interest in the columns of finance, business, politics, and general-news publications.
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