According to surveys, the likelihood of an SPD-led federal government has increased - and with it the chance of reintroducing the wealth tax, which was shut down twenty years ago following a ruling by the Constitutional Court.

This prospect worries the German middle class, because the tax would primarily affect business assets.

A new study by the Munich Ifo Institute on behalf of the Family Businesses Foundation underscores how justified the concerns are.

According to the expertise of the Mannheimer ZEW and the Cologne IW, it is the third economic analysis with which the foundation, supported by 500 companies, wants to draw attention to the risks that arise from a sharper burden on net wealth in Germany as a high-tax location.

Heike Goebel

Responsible editor for economic policy, responsible for “The order of the economy”.

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“A wealth tax reinforces the crisis and takes no account of the company's liquidity situation.

It reduces the incentives to invest and build up capital, ”says Ifo President Clemens Fuest, summarizing his findings.

After eight years with wealth tax, German economic output would be up to 6.2 percent lower than without wealth tax, warns the economist, based on simulation calculations.

Family foundation board member Rainer Kirchdörfer fears an outflow of capital abroad.

The SPD, the Greens and the Left have long used arguments to promote a tax or levy on (net) wealth, and the Left even wants both.

The high costs and unevenly distributed financial consequences of the pandemic provide them with new reasons for the old claim.

It is about a new equalization of burdens like after the Second World War, it is even said.

Fuest counters this by saying that income taxes on income and profits already ensure that taxpayers who would not have suffered losses or made profits during the crisis made a corresponding contribution.

In addition, the corona damage with the war destruction, resettlement and the national bankruptcy including currency reform are not comparable.

Too expensive to collect, too little yield

If Germany were to tax assets again, this could jeopardize the economic recovery after the Corona crisis. Even a low wealth tax rate increases the investor's bill significantly: an investment with a pre-tax income of four percent would be burdened with a one percent wealth tax in such a way as to levy an additional income tax of 25 percentage points, writes Fuest. That only affects the marginal burden, that is to say the additional tax that has to be paid if the tax base increases. The average burden would be lower if allowances were granted. But the limit load is decisive for the incentive to invest more in Germany.

Fuest draws attention to other disadvantages. The tax is expensive to collect due to a high evaluation effort, combined with deep encroachments on privacy. This often leads to evasive reactions. In the end, the volume is lower than hoped. If circumvention is not possible, growth and employment could suffer, which would reduce the flow of other tax sources. This is probably the reason why wealth taxes are becoming less important; Ten European countries have abolished it in the last few decades, most recently France in 2017. The fact that wealth-related taxes often contribute more to tax revenue elsewhere than in Germany is mainly due to property taxes, according to Fuest. On average in OECD countries, they provide 3.2 percent of the total, in Germany only 1.1 percent.

"That can be an occasion to examine whether a reform of the taxation of land is necessary," suggests Fuest. In any case, with the reintroduction of a net wealth tax, Germany was taking a risky “special path”. Does the state have additional financial needs after the crisis, be it more growth-friendly and significantly less risky, to sift through state tasks or to raise existing taxes, for example income or sales tax.