International Finance
EconomyFinance

Cost of the German political parties’ tax plans

The ifo Institute puts forth calculation of the cost

The CDU/CSU offers relief to those with medium and higher incomes, the SPD wants to ease the burden on medium income earners and raise taxes on incomes of more than 86,000 euros. The Green Party favours increasing the top tax rate for incomes exceeding 100,000 euros. In their election programme, the Left Party would like to relieve low and middle incomes and raise taxes on higher incomes. The FDP offers tax relief to medium and higher incomes. These are the results of the FAZ/ifo Tax Calculator, which is now on the FAZ.net website and with which all German taxpayers can calculate the impact of the parties’ plans on their own situation.

The CDU/CSU wants the current marginal tax rate of 42 percent to apply only for taxable annual incomes of more than 60,000 euros. They also want to reduce the bulge in the tax burden for medium incomes. The ifo Institute based its model calculations on the plans of the Small and Medium-Sized Business Association of the CDU/CSU, which call for a reduction in the marginal tax rate at the “kink point” of 24 to 20 percent. These plans also relieve incomes from about 8,820 euros a year, but to a significantly less extent than for higher incomes. Thus, a single person with 30,000 euros of taxable annual income would have a yearly tax savings of 744 euros, while a single with 60,000 euros of annual income would save 1,637 euros in tax. As a result of these tax reductions, state revenues would decline by around 22 billion euros.

The SPD also wants the highest tax rate (42 percent) to be applied only for incomes exceeding 60,000 euros. Between 60,000 and 76,200 euros, however, the Social Democrats want to introduce a new progression zone in which the income tax rate would rise to 45 percent. In addition, the SPD would like to burden higher incomes more heavily by increasing the top marginal tax rate to 48 percent. Households with an annual taxable income of 60,000 euros would benefit the most. Those with more than 86,000 euros would expect to pay more, a single household with 100,000 euros income would pay about 450 euros more in taxes per year.

The Greens’ election platform calls for raising the tax free allowance and increasing the top tax rate for incomes of more than 100,000 euros. Concrete proposals regarding the tax scales are lacking, however. The ifo Institute therefore assumes an increase in the tax free allowance to 10,820 euros and a lifting of the top tax rate to 45 percent for incomes above 100,000 euros.

The Left wants to raise the tax free allowance to 12,600 euros. Accordingly, singles with 20,000 euros of taxable income would save about 1,200 euros per year. The party also wants a longer rise in the second progression zone, so that with incomes of 70,000 euros a 53 percent a tax rate would apply, matching the top tax rate that prevailed during Helmut Kohl’s chancellorship. For single households with an income of 77,000 euros, the tax savings from the increase in the tax free allowance and the raised tax rates for high incomes would balance out. In addition, the Left plans a two-stage wealth tax with tax rates of 60 percent starting from 260,533 euros and 75 percent for more than a million euros. According to the ifo calculations, single income-millionaires would pay about 138,000 euros more in tax per year. Overall, the tax plans of the Left Party would yield annual reduced income of about 7.6 billion euros for the state.

The FDP wants to “move the tax scale to the right” and flatten the tax “bulge” for medium incomes. The FAZ/ifo Tax Calculator has modelled this with a shift of the two kink points by 5,000 euros each. This implies that the tax rate will rise more slowly from 14 percent to 24 percent and, in addition, the top tax rate (42 percent) will only apply to incomes of more than 59,057 euros. As a result, single households with an income of 30,000 euros will save 587 euros a year. Households with 60,000 euros will save 1,214 a year. According to the FAZ/ifo Tax Calculator, the FDP’s plans would reduce the state’s tax revenues by 17 billion euros.

What's New

IF Insights: The renaissance of state contingent debt instruments

IFM Correspondent

Quick sales strategies to finish the year strong

WebAdmin

IF Insights: Unveiling hidden poverty crisis in Lagos slums

IFM Correspondent

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.