Finance Minister Christian Lindner (FDP) is urging the income tax rate to be adjusted to inflation: wage increases should not already lead to higher tax rates if they at most compensate for inflation.

His draft law against this cold progression is now available, and at least Chancellor Olaf Scholz (SPD) is in favor of it.

Insidious additional burdens of this kind also affect taxpayers in other places – which are often forgotten politically: All kinds of allowances and lump sums gradually lose their value if they are not also increased in line with inflation.

Dietrich Creutzburg

Business correspondent in Berlin.

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How much catching up there is here is now illustrated by a list by the taxpayers' association.

He then examined a total of 17 flat rates and allowances in income tax law.

The best-known example, but by no means the most blatant, is the employee lump sum – the amount that employees can definitely deduct from income tax without providing individual proof of travel costs and other expenses: Although the traffic light recently increased this for the first time since 2011, from 1000 to 1200 euros per year.

However, if you add up the inflation since then, according to the calculations of the taxpayers' association on January 1, 2023, that is again too little.

It would then actually have to be at least 1252 euros.

And so as not to keep chasing after inflation, he immediately demands an increase to 1,500 euros.

But there are also lump sums that have not been increased for a long time.

For example, the lump sum for income-related expenses for "other income" such as pensions: This was set at 200 Deutschmarks per year in 1955 and changed to 102 euros in 2002 - nothing more.

In order to adjust this amount to the inflation that has accrued since then, it would have to rise to 573.37 euros for 2023, the interest group calculates.

Domestic study in focus

The tax rules for home offices and the limits of 1250 euros contained therein have been discussed somewhat more frequently in recent decades.

Formally, this is not a lump sum, since the expenses must always be proven.

However, they can only be deducted up to this limit, even if they are higher.

But even this limit, inflation is now far ahead, as the evaluation shows: The estimate of 1250 euros dates back to 1996;

Adjusted for inflation, it should now be 1943 euros.

The taxpayers' association has a two-part proposal: The limit for proven costs should rise to 1680 euros - and be supplemented by a new, simplifying alternative option based on a home office flat rate, which was limited during the pandemic.

It did not require precise proof of costs and amounted to EUR 5 per day for 2020 and 2021, with a maximum of EUR 600 per year.

Adjusted for price, it should be more than 5.50 euros by 2023;

if it should be continued at all.

According to the evaluation, there is also a significant backlog in the deduction of special expenses for childcare: The regulation that has been in force since 2006 allows two-thirds of the proven childcare costs to be deducted – up to 4,000 euros a year.

The inflation adjustment alone would now suggest 5417 euros here.

In addition, the taxpayers' association is calling for the two-thirds rule to be scrapped.

Other examples are the limit for the immediate depreciation of low-value assets (800 euros since 2018), the educational allowance for an adult child living abroad (924 euros since 2002) and the savings allowance (801 euros since 2009).

Lindner presents plans

The latter two are at least already on the political agenda: in the draft for the 2022 annual tax law, which Lindner had already presented in July before the plans against cold progression.

Among other things, it provides for the training allowance to be raised to 1,200 euros and the savings allowance to 1,000 euros, both effective January 1, 2023. The SPD, Greens and FDP had agreed to this in the coalition agreement.

The taxpayers' association calculates that full inflation compensation would actually require a savings allowance of 1,017 euros and a training allowance of 1,292 euros.

The analysis is part of his statement to the government on the planned annual tax law - combined with the basic request "that all lump sums in tax law should be checked regularly and adjusted to inflation".

The annual tax law, with which a colorful package of current tax changes is traditionally passed once a year, is the appropriate framework for this.

The Federal Cabinet intends to adopt this year's draft next Wednesday.

In view of the strong resistance from the SPD and Greens against the plans to reduce the cold tax progression, there is little to suggest that further tax exemptions could be adjusted to inflation in the deliberations on the annual tax law.