Social Insurance Contributions on Capital Income? Habeck’s Proposal Misses the Mark

It is likely that the interest, dividends, and rental income of most of these individuals would be relatively modest. A 2023 study by the ifo Institute indicates that expanding the assessment base to include capital income – while keeping the assessment ceiling unchanged – would raise total contribution revenue by 3.2%, or 5.3 billion euros. That would have only a limited impact on the financial stability of the health insurance system.

This, of course, assumes that all capital income is subject to contributions. However, Habeck has proposed a “generous” exemption for small savers. If the exemption were set at 1,000 euros per year and assuming that half of the 60 million contributors to public health insurance fully utilized this exemption, the additional revenue would fall below 1 billion euros. The impact on health insurance funds would be negligible.

Modest Revenue Effect – High Administrative Costs

The insured individuals whose income is below the assessment ceiling are typically those with smaller capital incomes, the very group Habeck does not want to burden. As a result, the proposal would likely have minimal impact, aside from the increased administrative costs involved.

One variation of the reform might involve levying contributions on the entire amount of capital income—including income exceeding the assessment ceiling – to increase additional revenue. However, this could create inequities: An individual earning 70,000 euros solely from wages would pay fewer contributions than someone earning 65,000 euros from wages and an additional 5,000 euros in capital income. It is questionable whether this would lead to a fairer distribution of health insurance contributions.

Another option might be to include all taxpayers’ capital income in the health insurance funding base. However, this raises the question of whether these new contributors would be entitled to benefits. This would effectively lead to an expansion of the insurance mandate, which would bring with it many additional questions.

Without expanding eligibility for benefits, this proposal would essentially create a new tax on capital income, with the proceeds directed to the health insurance system. This version aligns with Habeck’s argument that capital income is taxed more favorably than labor income, creating an unfair advantage. However, it overlooks the fact that contributions to the health insurance system are tied to the provision of healthcare services, whereas income taxes do not come with a corresponding benefit.

Moreover, profits distributed as dividends are already taxed at the corporate level –through both corporate income tax and trade tax – amounting to around 30 %. After the distribution, shareholders are also subject to a 25 % capital income tax, plus a solidarity surcharge. This results in a total tax burden of about 48.5 %, which is significantly higher than the usual tax burden on labor income.

A Call for Fundamental Reform

A major criticism of the current financing system for statutory health insurance is that it creates a variety of diffuse and unsystematic redistribution effects among the insured. These issues cannot be addressed merely by expanding the assessment base to include capital income – they require fundamental system reforms.

Ultimately, the future financial sustainability of healthcare cannot be secured by simply raising contributions, no matter who bears the burden. What is needed are reforms that lead to more efficient healthcare delivery, such as hospital consolidation or the application of artificial intelligence in healthcare management.

Clemens Fuest 
Professor of Economics and Public Finance
President of the ifo Institute

Published in an edited form under the title „Habecks Idee überzeugt nicht“, Handelsblatt, January 17/18/19, 2025.