Debate on Wealth Tax: Billions in Revenue but Controversial Opinions

Rostock - The state of Germany's infrastructure is in dire need of attention, with crumbling roads, aging bridges, and deteriorating schools posing significant challenges. Estimates suggest that a staggering EUR600 billion will be required over the next decade to address this investment backlog and advance decarbonization efforts. However, the pressing question remains: how can such a vast amount be raised given the current budget constraints?

In a recent survey conducted by the RedaktionsNetzwerk Deutschland (RND), where over 80,000 participants voiced their opinions, a notable 65% of respondents support the introduction of a wealth tax as a means to finance these crucial investments. In the state of Mecklenburg-Vorpommern, this figure is slightly lower at 63.9%. Comparatively, only 46% of participants support suspending the debt brake, with 40.5% in MV.

The discussion surrounding a wealth tax has persisted for years, yet no political consensus has emerged for its implementation. This tax is not a new concept; Germany first introduced a wealth tax in 1922. Revenue from this tax remained significant until the 1960s, generating an equivalent of approximately EUR10 billion today. However, the tax's efficacy diminished over time, particularly due to favorable treatment for property and land ownership. By the 1990s, states were only able to collect around EUR4.5 billion, with a tax rate set at 1% and a personal allowance of DM 120,000 (around EUR60,000).

In 1995, the Federal Constitutional Court deemed the wealth tax unconstitutional due to unequal treatment of different asset classes. The court mandated adjustments by the end of 1996 but imposed strict limitations, leading the government at the time to forgo reforms and suspend the tax in 1997. The corresponding legislation, however, was never officially repealed.

Calls for the tax's reinstatement have never fully subsided. Advocates argue that the wealth distribution in Germany has become increasingly unequal, with the top 10% of households holding 56% of the nation's wealth, placing Germany among the leading countries in wealth inequality in Europe. This growing disparity raises questions of fairness and economic viability, as the country is characterized by a comparatively low tax burden on wealth relative to labor.

Marcel Fratzscher, Director of the German Institute for Economic Research (DIW), highlights that Germany's tax system favors labor over wealth, creating both fairness and economic challenges, as labor becomes less rewarding. Countries such as the USA, France, Canada, and the UK impose three to four times higher taxes on personal wealth.

Political parties such as the SPD, Greens, and Left Party have long advocated for reactivating the wealth tax. The newly formed BSW has also included this demand in its platform. Calculations by the DIW suggest that a tax rate of 1% with a personal allowance of EUR1 million could yield up to EUR35 billion in revenue for the government.

The RND survey, conducted from December 13 to January 23, engaged readers from 26 regional newspapers and the national news portal RND.de. It is important to note that while over 81,000 responses were collected, the sample does not represent the overall population.

Opposition parties, including the AfD, FDP, and Union, firmly reject the introduction of a wealth tax, branding it as detrimental to economic performance. The Institute of the German Economy (IW) supports this view, asserting that reintroducing the wealth tax would negatively impact small and medium-sized enterprises, diminish their investment capabilities, and jeopardize jobs.

However, proponents counter these arguments, asserting that substantial funding will be necessary for future investments in climate protection, digital transformation, education, and innovation. Fratzscher argues that a wealth tax could facilitate the creation of high-quality jobs and bolster economic growth, thereby securing long-term prosperity.

Concerns regarding the administrative burden associated with tax collection are also dismissed by supporters. The DIW estimates that collection costs for wealth between EUR1 million and EUR2 million would range from 4% to 8%, which they claim is comparable to the costs associated with income tax assessments.

In relation to a global wealth tax, proponents see the recently discussed G20 proposal for a 2% tax on billionaires starting from EUR100 million as a potential entry point for higher wealth taxation. According to DIW estimates, this could yield nearly EUR17 billion for the German treasury. IW Director Hüther opposes this concept as well, arguing that the majority of wealth is tied up in businesses, leading to greater harm than benefit. Nevertheless, Fratzscher maintains that the global billionaire tax is not entirely unrealistic, suggesting that many billionaires are now advocating for increased taxation.