Why should the poor pay less taxes?

The state takes half from many

While income is distributed fairly evenly in Germany, wealth is rather unevenly distributed. The Aldi heir, Karl Albrecht Junior, owns more than 30 billion US dollars, and many Hartz IV recipients from Duisburg-Marxloh do not own a single cent. But these two poles have little to do with the reality of life for the vast majority in Germany, because the vast majority of citizens are doing very well in material terms.

The better off someone is financially, the more taxes and duties the state demands. Social contributions, direct and indirect taxes contribute roughly equally to the financing of the public budget. Some sources of income take more account of income levels, others less. The most important redistributive instrument is income tax. A single person pays the top tax rate of 42 percent from a taxable annual income of just under 55,000 euros. With church tax and the solidarity surcharge, the burden of every additional euro earned in this salary class is almost 50 percent.

Compared to this direct tax, the redistributive effects of indirect taxes are significantly milder. Value-added tax, for example, burdens everyone's consumption equally. Although the wealthy spend a smaller part of their income on consumption, they of course still consume more than low-wage earners and therefore bear a greater part of the burden: the top ten percent of income earners pay 20 percent of indirect taxes. For comparison: your share of income tax is 48 percent. The participation of the wealthy in public finance would be even greater if some did not illegally park their money in black money accounts abroad. One means of combating tax evaders is certainly a more effective manhunt. In this case, however, tax increases are ineffective and primarily affect honest citizens.

The revenues reach records

Nevertheless, the idea is widespread that the state must burden “the rich” with an additional wealth tax. This assessment is also based on the fact that many believe that with the so-called flat tax of 25 percent, capital income is taxed too low compared to labor income. But the world looks different when it comes to business assets. Although “only” the capital gains tax of 25 percent plus solidarity surcharge is due on the dividend, the company itself has already paid taxes beforehand. This increases the tax on distributed profits to almost 50 percent. If the wealth tax is added, the burden can even rise to more than 90 percent. One argument in favor of reintroducing the wealth tax is that it is needed to consolidate public finances. The public sector suffers from a lot, but not from a lack of income: at around 714 billion euros, tax revenue reached a new high in 2018.

The topic of tax policy on the IW website