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Guide to a tax office in Potsdam

Photo: Soeren Stache / dpa

With the help of a reform of income tax and basic security, researchers at the Munich-based Ifo Institute want to get more people to take up employment. The key points of the proposal are a cap on spousal splitting, increases in basic allowances, flat-rate advertising costs and child allowances, an abolition of the solidarity surcharge, higher top and rich tax rates and changes to basic security

.» The reform would increase the number of hours worked to the extent of 184,000 full-time positions," says Ifo expert Andreas Peichl. At the same time, 172,000 people would take up employment." There would be no additional costs for the state budget.

Spousal splitting is to be replaced by so-called real splitting. Instead of being assessed jointly, spouses are allowed to transfer taxable income up to the amount of the statutory maintenance allowance - currently 13,805 euros - to the partner. The cap would increase the work incentives for second earners, the institute said. It is also conceivable to apply this rule to all people in welfare communities.

Wealth tax of 47 percent?

According to the proposal, the basic allowance is to increase by 500 to 11,408 euros, the advertising allowance by 200 to 1430 euros. For the top tax rate, the Ifo proposes 44 instead of 42 percent - still from a taxable income of 62,809 euros. In the case of the rich tax rate, the Ifo suggests 47 instead of 45 percent - but only from a limit increased by around 25,000 to 302,825 euros.

Union parliamentary group leader Friedrich Merz (CDU) had recently shown himself open to a slightly increased top tax rate, if in return the so-called middle class belly would be reduced. While SPD General Secretary Kevin Kühnert assessed the initiative positively, Federal Finance Minister Christian Lindner (FDP) immediately rejected the demand.

"Despite the recent reform of the citizen's allowance, there is still room for improvement in basic security," said Ifo researcher Maximilian Blömer. "Especially for single people, further work incentives could be created through which they could increase their disposable income."

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