German Economists Favor Higher tax for very high incomes but also tax cuts to compensate for bracket creep
A majority of German economists support a higher tax rate for very high incomes. A total of 56 percent of participants in the ifo Economists Panel are in favor of raising the marginal income tax rate on annual incomes of EUR 278,000 or more. However, 52 percent of the participants reject an increase in the top tax rate, which is already payable for incomes of EUR 59,000 and up. “Contrary to what the name suggests, an increase in the top tax rate would not only affect the very high income households, but would particularly burden the middle class,” says ifo researcher Marcel Schlepper.
A full 76 percent support the Inflation Adjustment Act passed by the German Bundestag. This law includes tax cuts to compensate for bracket creep. In their annual report, the German Council of Economic Experts had proposed temporary tax increases for top earners. A good 46 percent of economics professors support a higher top tax rate, while 52 percent oppose it. These two groups differ in their assessment of whether high-income individuals are already shouldering their fair share of the burdens of the crisis. Among the supporters, 94 percent say that raising the top tax rate would improve the fairness of burden sharing in the crisis. Only 28 percent of those opposing the measure see it that way. The top tax rate of 42 percent will come into force in 2022 to annual taxable incomes above EUR 59,000. The wealth tax rate of 45 percent applies to incomes above EUR 278,000.
“Public budgets are groaning under the additional spending of recent years. Consolidation is urgently needed,” Schlepper says. About 52 percent of respondents favor a reduction in public spending, whereas 43 percent are in favor of tax increases. At 37 percent, a similarly high level of support is found for suspending the debt brake. Only 6 percent favor further extra budgets.
More details on the latest ifo Economists Panel with 153 participants are available at:
ifo Economists Panel December 2022
On the Proposal of the Economic Experts: Majority of Economists Favor Higher “Wealth Tax Rate” and Reduction of Bracket Creep
The energy crisis resulting from the Russian war of aggression and the associated price increases are putting a strain on the German economy and population. Although the German government’s relief packages can cushion the impact of the crisis, they are at the same time exacerbating the strain on public budgets in the wake of the Covid-19 pandemic. In its annual report of November 9, 2022, the German Council of Economic Experts therefore proposed a temporary increase in the top tax rate, the introduction of an energy solidarity surcharge for top earners, and a postponement of the reduction of bracket creep.
