Little Benefit in Making Social Security Contributions for Interest, Dividends, and Rent Compulsory

Experts from the ifo Institute advise against increasing social security contributions by making interest, dividends, and rent subject to compulsory contributions. “Depending on the assumptions, expanding the assessment base would result in only a moderate increase in income subject to compulsory contributions – a rise between 2.4 and 4.0 percent,” write researchers Anne Steuernagel and Marcel Thum from the ifo branches in Fürth and Dresden. “If, however, the income threshold were to fall simultaneously, the situation would be different: the increase would be 12.7 percent. But then the payouts would also increase later on, especially for pensions.”

The researchers’ calculations take into account only people with compulsory insurance, not those with voluntary insurance; the latter often have a higher income. As the causes of the rise in costs vary widely among the individual social security branches, the article continues, each case calls for different reforms. In pension insurance, for example, this could be an increase in the retirement age (depending on life expectancy). Another option would be to waive the lower limit for pension levels, set by the German government at 48 percent of average income. Alternatively, it would be possible to reduce the value of pension points as of a specific contribution amount. This would increase the financial viability of the system, lead to lower contribution rates, and reduce the federal subsidy. At least some pensioners would receive a somewhat lower pension, however. That could open a discussion about redistribution in the pension system which would be better debated in the overall tax system, though.