Karlsruhe Upholds Solidarity Tax Amid Ongoing Debate

The Federal Constitutional Court in Germany has confirmed that the Solidarity Surcharge can continue to be levied even 35 years after the reunification of Germany, citing ongoing financial needs in Eastern Germany. The court's decision has reignited discussions among political factions regarding the future of this tax.

In a ruling delivered on March 26, 2025, the court determined that it could not be conclusively established that the financial needs arising from reunification had entirely dissipated by 2020. Consequently, the federal government was not required to abolish the surcharge in 2019, dismissing a complaint from six former members of the Free Democratic Party (FDP) who challenged its legality.

The court emphasized that it would adopt a restrained approach toward legislative decisions in tax matters, asserting that the surcharge could only be deemed unconstitutional if it became evidently unjustifiable under changing circumstances. This position was articulated by Constitutional Court Justice Christine Langenfeld.

The court also refuted claims from the FDP that the surcharge constitutes an unconstitutional wealth tax, noting that only about 10% of income taxpayers would be affected starting from the 2021 assessment period. Furthermore, the surcharge remains applicable to capital investors and corporations. The court justified this progressive structure, stating that it aims to distribute the additional tax burden according to taxpayers' ability to pay.

However, the court imposed a duty on the legislator to regularly reassess the necessity of the surcharge. If the charge remains in place for an extended period, the government is expected to periodically evaluate whether the assumptions underlying the financial need remain valid. This directive has led to varying interpretations among politicians from different parties following the ruling.

Luise Hölscher, the Secretary of State for Finance, noted that the ruling does not suggest a specific timeframe for the eventual expiration of the surcharge. She indicated that as long as additional funding is required, the surcharge could continue to be collected, although she refrained from committing to a specific date regarding its potential discontinuation, particularly beyond 2030.

According to a report on which the court's decision relied, certain financial burdens linked to reunification are projected to persist until 2030. These include challenges in economic development and the equitable financial support for states and municipalities. Moreover, social insurance expenditures in Eastern Germany remain higher than in the West. While this report has stirred debate among economists, the court concluded that there was no evident basis to assert that the financial needs stemming from reunification had entirely vanished.

Political reactions to the ruling have varied significantly. Johannes Fechner from the Social Democratic Party (SPD) described the decision as a positive development for ongoing coalition negotiations, suggesting that it paves the way for retaining the surcharge in the coalition agreement. He interpreted the court's demand for regular evaluations as an implicit annual justification requirement.

Conversely, representatives from the Union parties have reiterated their commitment to abolishing the surcharge, arguing that its continuation undermines Germany's competitiveness as an investment location. Mathias Middelberg, deputy leader of the Union parliamentary group, emphasized the need for a tax structure that supports international competitiveness.

In remarks from Bavaria, Finance Minister Albert Füracker asserted that the priority remains the complete abolition of the surcharge as soon as possible.

Former FDP Bundestag member Florian Toncar, one of the complainants, expressed disappointment that an immediate end to the surcharge was not achieved but noted that the ruling implies a potential expiration date for the tax. He articulated support for the idea that the government must demonstrate the ongoing necessity of the surcharge or risk further legal challenges.

Hanno Kube, a financial law expert consulted by the court, remarked on the positive requirement for a clear justification and need for supplementary taxes. However, he acknowledged that the timeline for the surcharge's discontinuation remains uncertain.

There is increasing pressure from the business sector on the Union to advocate for the abolition of the surcharge in coalition discussions with the SPD. Tanja Gönner, head of the BDI, described the ruling as a significant setback for companies and called for the surcharge's removal to be included in the new government's coalition agreement.