Christian Lindner wants to relieve millions of taxpayers. The reactions to the plans of the Federal Minister of Finance are very different. A lot revolves around the question: Does his idea bring anything at all to low-income earners?
In the middle of midsummer, Germany is talking about the cold progression. The term describes the following: If a taxpayer gets five percent more salary with five percent inflation, that cannot add up to zero, but mean a minus for him.
Because of the higher salary, he or she may slip into the next tax bracket and end up with less net than gross. This is exactly what Christian Lindner (FDP) wants to prevent and relieve 48 million taxpayers in 2023 by 10.1 billion euros.
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The reactions to this are very different and it is also questionable whether Lindner will be able to assert himself with his idea. The resistance is fierce not only among the opposition, but also within the traffic light coalition.
The core question is whether the ten billion euros should not be used more specifically for people with low incomes. The SPD and the Greens criticize the fact that Lindner’s model is of little use to low earners and tends to favor high earners.
So says Katharina Beck, financial policy spokeswoman for the Greens: “Tax relief in the billions, from which high earners benefit most – that’s just not up to date.” The FDP counters: “Especially the lower and middle incomes, the relief is also clear feel,” says Markus Herbrand, the party’s spokesman for financial policy.
Many in the SPD and in the Greens would not focus on cold progression at all and would “rather use other levers for targeted support”, as Federal Family Minister Lisa Paus of the Greens puts it.
The SPD has proposed an alternative based on direct payments. The “Handelsblatt” quotes from a letter to the entire parliamentary group, which comes from the SPD’s financial policy spokesman: “Around 90 percent of the population benefit from direct payments more than from an income tax cut,” writes Michael Schrodl.
Because: Many people with very low incomes do not pay any income tax at all, so that Lindner’s proposals for cold progression would not reach them at all. However, the opinion of the SPD is by no means unequivocal.
According to his government spokesman, Lindner’s idea met with “fundamental goodwill” from the Federal Chancellor. However, Olaf Scholz (SPD) sees the move as part of a larger package.
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Opinion in the CDU is apparently divided. Its chairman Friedrich Merz describes the plans as “ineffective” and demands a specific focus on those in need: “It would have been better to give households in need a little more instead of distributing money with the watering can.”
This puts a strain on the federal budget and not enough gets to those who really need support. Party colleague Jens Spahn reminds that the CDU has always said that something must be done against cold progression.
“The increase in the basic tax-free allowance is without a doubt correct, raising child benefit is reasonable and, above all, doing something with the tax rates to compensate for the cold progression, these are all necessary measures,” he said on “Deutschlandfunk” and added that these measures also would have come had it not been for the current crisis.
The German Association of Cities criticizes Lindner’s project, saying that there will be billions in tax shortfalls and that municipalities should receive compensation from the federal government for the 4.2 billion euros that they would then be missing. The trade unions are also skeptical about Lindner’s plans, whereas the employers’ association BDA is clearly in favor of it.
If you want to clear the jungle of arguments in order to form an objective judgment, you need a machete for the complicated matter. In fact, Lindner’s relief would be received very differently by people with different incomes.
The decisive factor is whether you only look at absolute amounts – or show the relief for each income group as a percentage of their previous tax burden. Anyone who lists the relief in euros in addition to the income will probably come to the conclusion that the reduction of the cold progression actually benefits the high earners – because a relief of 1000 euros is more than a relief of 500 euros.
If you look at the values as a percentage, you will probably come to a completely different assessment: In fact, a single parent with 1000 euros gross per month is relieved by 36 percent. Someone with an income of 7,500 euros only by two percent, calculate tax experts.
Incidentally, married couples with children receive the greatest relief. In purely mathematical terms, a family with a joint income of around 14,000 euros a month benefits the most. The same applies here: the absolute values are higher for families with high incomes, but lower incomes are given greater consideration in percentage terms.
It is also true that the wealthy do not benefit from Lindner’s plans. The tax rate for the wealthy continues to apply from an annual income of 278,000 euros and should remain at 45 percent. The point here: His predecessor in office, today’s Federal Chancellor Olaf Scholz from the SPD, had always adjusted the Reich tax rate for changes related to cold progression.
In addition, those who earn 9500 euros per month or more receive significantly less relief. Experts see this as a clear concession from Lindner to the SPD and the Greens. The coming weeks will show whether this concession is sufficient.
The article “Now there is criticism of Lindner’s tax plans” comes from WirtschaftsKurier.
