How the wealthiest individuals enjoy the lowest tax rates

How the wealthiest individuals enjoy the lowest tax rates

Wealthy individuals in Germany enjoy a preferential tax system, with billionaires paying a lower percentage of their income in taxes compared to the middle class. This is according to a recent study that examined the effective tax contributions of the super-rich in Switzerland, Austria, and Germany.

The number of billionaires in Germany continues to grow, with estimates suggesting there are around 200, each holding assets of around 900 billion euros, or 237 super-rich individuals with assets worth over 1.4 trillion euros. Germany maintains relatively low tax rates on wealth-related income, despite being among the highest tax countries in the world for individuals with regular incomes.

Germans are subject to some of the highest taxes and social security contributions, which can reach up to 47.8% for single people and 40.8% for families with children. The tax system is designed to target the broad working population, but the super-rich, who hold the majority of their wealth in assets, benefit from these low tax rates for property income.

Billionaires earn a significant portion of their income through their assets, such as company profits and investments. Corporate tax rates in Germany average 30%, primarily composed of corporation tax and trade tax. However, the latter varies from municipality to municipality, creating "tax havens" within Germany, like Leverkusen and Monheim am Rhein. In these areas, entrepreneurs can enjoy reduced business taxes, attracting companies like Mazda, Bayer, and BASF.

Tax evasion also plays a role in the minimal tax payments by the super-rich. Unlike their counterparts in Germany, Swiss billionaires pay higher taxes and duties, with a maximum rate of 41.5%. Switzerland's wealth tax, which accounts for around eleven billion euros annually (2022), seven percent of total tax revenue.

The difference between what Swiss billionaires pay and the maximum tax rate is much less than in Germany, which implies that if Germany were to implement a similar wealth tax, it would generate additional tax revenue of around 73 billion euros. The study highlights that Switzerland is not the tax haven it's often perceived to be, with significant differences in tax rates throughout the country. Swiss middle-class families pay 15% in taxes and duties, significantly less than what many German billionaires contribute.

Overall, the study suggests that Germany's tax system heavily benefits the super-rich, as they avoid considerable amounts of tax payments through schemes like investment companies and anti-capital gains taxes. The introduction of a wealth tax could help address this issue, similar to the model used in Switzerland, potentially generating billions in additional revenue.

Conclusion

The study reveals that the super-rich in Germany are subject to lower tax rates compared to the middle class and other high-income earners, despite their significantly higher wealth. The German tax system is designed to help the majority of the population, working individuals who contribute a higher share of their income due to their regular paychecks. However, this arrangement leaves the super-rich paying much less than their fair share, with strategies like investment companies and anti-capital gains taxes allowing them to avoid significant tax payments. A wealth tax could bridge this gap, generating substantial revenue for the German government.

Germany currently has a tax system that favors the wealthy while burdening the middle class. Billionaires enjoy fewer tax obligations than those on lower incomes, contributing to an ever-growing wealth gap within the country. To remedy this imbalance, policymakers should consider implementing a wealth tax similar to what is already in place in Switzerland, which could potentially generate tens of billions of euros in revenue.

However, it's important to note that Switzerland is not a perfect example of a tax haven. The country has diverse taxes and duties across its cantons, and a Swiss middle-class family pays less in comparison to both the super-rich and the "average" German family. Although the Swiss wealth tax is highly effective, the pay-gap between the rich and the middle class decreases significantly when compared to Germany's current system, making wealth taxes an ideal solution for addressing similar tax disparities in other countries.

In conclusion, re-establishing a wealth tax in Germany would provide the government with significant revenue while also leveling the playing field and promoting a more equitable distribution of taxes between the rich and the middle class. This would help reduce the striking wealth gap, thus promoting a fairer financial environment for all citizens.

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Several nations have eliminated the luxury tax in recent years, including Italy, Austria, Sweden, and the Netherlands. Germany, on the other hand, still has this tax in the books, but it was discontinued in 1997. Although there is an inheritance tax in Germany, it only constitutes around 1% of overall tax income or around 8 billion euros in 2022.

Advocates for labor unions and social organizations advocate for the recovery of the tax on wealth. Nonetheless, the administration is divided; the Greens and SPD want to reintroduce it. "Those who are incredibly wealthy must also contribute to society, " argues Federal Development Minister Svenja Schulze in an interview with ntv. On the other hand, FDP, the coalition partner, opposes a wealth tax. They claim it's too bureaucratic, says Finance Minister Christian Lindner. The Liberals state that it would be a burden on medium-sized enterprises. This might negatively impact economic growth. Companies may be more inclined to invest overseas in this situation.

When the tax on wealth was active, it accounted for around 0.5% of the country's GDP. The German Institute for Economic Research (DIW) estimates that this would equate to roughly 20 billion euros today.

A wealth tax necessitates more effort than it returns money, as pointed out by Johannes König from the Socio-Economic Panel at DIW in "Wieder was gelernt" podcast in February. "Even in France, where this tax exists, the income generated is less than 10% of the total tax revenue. Unlike those in other nations, the wealthy and mega-rich excel at evading taxes, both legally and illegally."

Reymaier disputes this idea: "We had the wealth tax until 1996, and the expenses associated with collecting it were very low in comparison to the revenue collected." This strategy was successful previously.

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1. Oxfam and the Hans Böckler Foundation have been advocating for a wealth tax in Germany, arguing that the super-rich should contribute more to society.
2. The elimination of the luxury tax in several countries has resulted in a shift of wealth to tax havens, and Germany's inheritance tax contributes only a small percentage to overall tax revenue.
3. The Greens and SPD have supported the reintroduction of a wealth tax, while the FDP and Liberals have argued against it on the grounds of bureaucracy and potential negative impacts on economic growth and medium-sized enterprises.
4. Critics argue that a wealth tax would require significant resources to collect and would not yield enough revenue to justify the effort, as wealthy individuals are skilled at evading taxes.
5. Previous experiments with a wealth tax in Germany, prior to its discontinuation in 1997, showed that the expenses associated with collecting the tax were relatively low compared to the revenue generated.
6. Switzerland's wealth tax, which accounts for a significant percentage of total tax revenue, highlights that wealth taxes can be an effective tool for addressing tax disparities.
7. Reintroducing a wealth tax in Germany could potentially generate billions in additional revenue and help reduce the wealth gap between the rich and the middle class, promoting a fairer distribution of taxes.

Source: www.ntv.de