Germany Debates Wealth Tax Revival After 29-Year Absence, June 05

Germany’s government is debating whether to bring back a wealth tax that has been dormant for 29 years. The German Trade Union Confederation and the German Institute for Economic Research are pushing for new taxes on the wealthy to pay for income tax cuts and close growing budget shortfalls. The coalition government plans to reform income taxes by January 1, 2027, but how to finance the cuts remains unresolved.

Why Germany Stopped Taxing Wealth

Germany abandoned the wealth tax in 1997 after a court ruling found it violated equal treatment principles. The problem was that real estate was taxed differently than stocks and cash. The tax itself was not banned, but a legal fix was needed to apply it fairly. The SPD has called for its return, but the governing coalition’s other partner, the Union, has blocked it from the coalition agreement.

What Economists Are Proposing

DIW President Marcel Fratzscher says a 2% wealth tax on large fortunes would generate approximately €42 billion in annual revenue for the state. This would give the government room to cut income taxes on workers and businesses. Fratzscher argues that Germany taxes labor far more heavily than wealth compared to other developed nations. The income tax reform alone costs about €30 billion per year, leaving a gap of roughly €15 billion that cannot be closed through higher income tax rates alone.

Union Proposal Targets Millionaires and Superrich

The German Trade Union Confederation proposes taxing every euro above €1 million in net wealth for individuals and €2 million for married couples. For the wealthiest 0.1% of the population, the union wants an additional 10% levy on assets above €10 million, payable over 20 years. Union official Stefan Körzell said the government must make the wealthy contribute more instead of cutting social programs. Germany’s number of superrich individuals with assets above €86 million has grown rapidly in recent years.

Coalition Faces Deadline on Tax Reform

The black-red coalition must decide on income tax reform details by mid-July before parliament’s summer break. Finance Minister Lars Klingbeil aims to provide relief to 95% of workers, particularly those earning €2,500 to €4,000 monthly. The current tax system penalizes middle-income earners with a steep rate increase, discouraging overtime and full-time work. Economists say fixing this “middle-class bulge” could boost economic output.

Final Thoughts

Germany’s government must choose between raising taxes on wealth or cutting social benefits to fund income tax relief. With economists and unions united behind a wealth tax, the political barrier is the Union’s coalition partner. The July deadline forces a decision.

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