The government pays taxes

Taxes: Who could be relieved after the federal election, who pays on it?

Berlin - Whenever Olaf Scholz speaks about the German tax system, the SPD candidate for chancellor delivers a message. After the crisis, there could be no financial relief for the wealthy. At least not under a Chancellor Scholz. For this, small and medium incomes should be relieved.

Take the big money to distribute it downwards - a story like from the social democratic model textbook. And the SPD is not alone: ​​Greens and leftists also want to burden top earners more heavily after the federal election in the autumn. But then the more difficult part of the discussion begins: Who is actually wealthy? What does rich mean? And who ultimately benefits to what extent from such a policy? The German Economic Institute (IW), which is close to the employer, has now calculated the tax plans of the three center-left parties - and made some interesting observations.

The Left Party wants to give strong relief

Anyone who earns 50,000 euros gross annually as a single - certainly not a bad income - would have to pay 1052 euros less per year to the tax authorities according to the tax plans of the Left. Low-wage earners with an income of 25,000 euros also benefit most from the ideas of the Left Party (1074 euros savings). The SPD and the Greens leave between 64 and 120 euros more net for low and middle earners - per year, mind you. "It is surprising that the left is the only one of the three parties who really wants to provide relief," said IW tax expert Martin Beznoska of the Berliner Zeitung. Single persons would still be relieved up to a taxable income of 78,000 euros. And: Taxes should only be paid from an income of 14,400 euros. The so-called basic allowance is currently 9408 euros.

However, it also shows that the relief has a price. And that, according to the will of the Left Party, should be paid by the higher earners and the highest earners. The top tax rate should rise from 42 to 53 percent and apply from an annual income of 70,000 euros (currently: around 58,000 euros). In addition, the Left wants to raise the so-called tax on income from around 260,000 euros from currently 45 to 60 percent. Income from one million euros is then taxed again at 75 percent. So anyone who earns exactly one million euros would have to pay around 130,000 euros more in taxes per year with the Left, while the extra burden for the SPD and the Greens is between 26,000 and 27,000 euros.

People with a very high income (150,000 euros) would be taxed comparatively moderately with the Greens and SPD at an additional 998 euros (Greens) or 1940 euros (SPD) per year, the left would also get the most: the tax liability would increase by 7724 euros .

The thrust of the three parties is therefore clear, at least in broad terms. The Union and FDP have not yet submitted a tax concept. It is likely, however, that they too want to relieve lower and middle incomes. Both parties have always ruled out tax increases in the past. With a view to the federal elections in autumn, the question arises of what will actually change for taxpayers. It would definitely be time for tax reform.

That wasn't a real relief

Martin Beznoska, IW tax expert

The last major correction to the income tariff was a long time ago. On January 1, 2005, the last stage of the income tax reduction decided by Red-Green in 2000 came into force: the initial and top tax rates were reduced from 16 to 15 percent and from 45 to 42 percent, respectively. Above all, high earners benefited from it. In the years that followed, the pendulum swung again and politicians - keyword tax on the rich - tended to talk about new burdens. “The tax exemption has been adjusted regularly, but in principle not much has changed,” says IW economist Beznoska. “That was not really a relief.” Experts agree that there is a need for adjustments. The so-called middle class belly is still a nuisance for many employees. Due to the kinked course of the income tax rate, the burden increases very quickly in certain areas, then more slowly - especially low-wage earners are disproportionately negatively affected by salary increases. The solidarity surcharge has not yet been abolished for all taxpayers either.

The tax rate reached a new high in 2019

On behalf of the FDP-affiliated Friedrich Naumann Foundation, the RWI Leibniz Institute for Economic Research calculated that the overall economic tax rate, i.e. the burden of taxes and social contributions, reached a new high in 2019. It was 41.3 percent. Die Welt am Sonntag (WamS) first reported about it. In 2020 and 2021, the quota is likely to fall again due to the partial abolition of the solidarity surcharge. However, the pandemic threatens higher health insurance contributions and increasing pension expenditure due to the aging of society, both of which, in turn, affect recipients of lower and middle incomes more severely.

“The middle class and even higher earners are burdened quite heavily in Germany,” says Stefan Bach, tax expert at the German Institute for Economic Research (DIW), in an interview with the Berliner Zeitung. In contrast, high incomes and wealth have been relieved in the past. Under Helmut Kohl, the top tax rate was 53 percent plus solos. Bach advocates taking greater responsibility again, including high assets, such as inheritances or real estate. Bach sees an attempt to correct the tax plans of the three center-left parties. However, the economist doubts whether a wealth tax, as favored by the SPD, is an effective means for more distributive justice. Namely, it also burdens business assets. And with it jobs.

The Federal Republic of Germany is also a high-tax country for companies

In any case, corporate taxes in Germany are already high, perhaps even too high in an international comparison. With trade tax and the solidarity surcharge, they are around 30 percent on average. "Only Portugal and France tax their companies higher among the large OECD countries," says IW researcher Martin Beznoska. The Paris government is planning a tax cut - despite the financial burdens of Corona. Other countries had done this in the past. In absolute and relative terms, the Federal Republic has thus become a high-tax country for companies.

Whether this will make tax policy a major election issue is another matter. Before the 2005 Bundestag election, the Union campaigned for votes for the last time with extensive reform plans. This almost cost Angela Merkel the chancellorship. At least the major parties should have drawn their conclusions from this. On the other hand, if Olaf Scholz really thinks he has chances at the Chancellery, he will only be able to do so in a three-way alliance, given the current situation. Scholz is considered a traffic light proponent. If the FDP even gets involved in a coalition with Social Democrats and Greens, the SPD candidate will have to offer it something - for example, more courageous tax cuts and the waiver of additional burdens. And even a black-green coalition, believes IW economist Beznoska, could probably quickly agree on a correction for small and medium incomes.

In any case, that doesn't have to mean a bad thing for taxpayers.