Post-Bundestag Elections Tax Overhaul: Alterations in Tax Liability for Investors
Early Federal Election and Tax Implications for Investors
On Tuesday, February 23rd, Germany held an early federal election, leaving investors wondering about the tax implications of the major parties’ programs. Let us delve into the proposed tax adjustments on basic allowances, tax rates, withholding tax, solidarity surcharge, and income, inheritance, and wealth taxation.
To fulfill their tax-cutting promises, politicians are looking at increasing basic allowances. The current "tax-free subsistence minimum" stands at €12,096 for singles and €24,192 for married couples filing jointly. Each party offers varying increments, ranging between €13,000 and €16,000. However, some argue that such increases have already been occurring to combat cold progression, such as with wage increases.
A key question is the scope of the top tax rate of 42%, applying to single individuals with taxable annual income of €68,430 and above. In the upcoming legislative period, proposed adjustments include the Union's plan to set a new upper limit of €80,000, while the FDP suggests €96,600. The Federal Association of Taxpayers advocates for an entry threshold of €100,000 for the top tax bracket.
Regarding the 25% flat tax on high interest and dividend income, opinions remain divided. SP and the Left Party aim to repeal the withholding tax introduced by Peer Steinbrück in 2009, while Greens, the Social Democrats, and the Left Party propose treating interest, dividends, and realized capital gains like regular income, including social security contributions. Alternatively, Union and FDP advocate for maintaining the withholding tax.
The solidarity surcharge, a thorn in the side of several parties, is another area requiring attention. Notably, the SPD wants to maintain the solidarity surcharge, while the Greens want to incorporate it into the income tax at a higher rate. The Federal Constitutional Court is expected to announce its decision on a constitutional complaint against the Solidarity Surcharge Act soon.
As the parties’ tax programs range between €30 and €189 billion, finding sufficient funding remains a challenge. Each party remains vague on financing options. However, one thing is certain: no party is expected to form a majority government, so compromises will be essential.
To provide a brief overview of each party’s tax plans, here is a summary:
- CDU: Gradual flattening of tax rates for middle and high incomes, as well as the abolition of the solidarity surcharge for businesses and investors.
- CSU: Increases in the commuter allowance, overtime pay, and allowances for volunteers and coaches. No changes to inheritance tax have been proposed for years.
- SPD: Relief for 95% of taxpayers, but increased tax rates for the top and wealth tax brackets. Overtime pay would be tax-free, and new fiscal incentives would be created for part-time employment. They also advocate for a reintroduction of the wealth tax for large fortunes over 100 million euros.
- Greens: Increased basic allowances and integration of the solidarity surcharge into the income tax rate. They aim to tax inheritances and gifts more heavily for high fortunes while retaining tax advantages for small and medium fortunes.
- FDP: Tax relief for high earners, increasing the basic allowance and eliminating the solidarity surcharge. They categorically reject the reintroduction of a wealth tax.
- The Left: A considerable decrease in the tax burden for all incomes under €7,000 (singles), and increased taxes for higher incomes. They advocate for a wealth tax with a tax-free allowance for private wealth over 1 million euros and business wealth over 5 million euros.
- AfD: Tax relief, especially for middle and lower-income earners, and opposition to wealth taxes.
- BSW: A focus on corporate taxation with possible benefits for small and medium enterprises. They advocate for a reintroduction of the wealth tax and a financial transactions tax.
In conclusion, the proposed tax implications for investors in the upcoming German federal election will address key areas impacting corporate and individual tax rates, withholding tax, solidarity surcharge, basic allowances, and inheritance and wealth taxes. The parties' individual proposals reflect a more progressive approach from Greens, social democrats, and the left, while CDU/CSU and FDP emphasize tax cuts and reducing the tax burden on businesses and high earners. The financing of these plans remains unclear, as no party is expected to secure a majority government.
In the context of the upcoming German federal election, the parties' proposed tax adjustments could significantly impact business, finance, politics, and general-news sectors. Notably, plans include varying increments for basic allowances, adjustments to the top tax rate, debates on the flat tax on high interest and dividend income, and discussions on the solidarity surcharge. Each party offers distinct approaches to income, inheritance, and wealth taxation, creating a complex landscape for investors to navigate in the coming legislative period.
