Taxes: who benefits from Lindner’s relief plans and how

Who benefits from Lindner’s relief plans and how

At a press conference in Berlin, Christian Lindner presents the basic parameters of his inflation compensation law

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To mitigate the consequences of high inflation in everyday life, Federal Finance Minister Christian Lindner is planning an inflation compensation law. His promise: relief for 48 million citizens. Lindner was particularly interested in the cold progression. What can be expected from the plans

Finance Minister Christian Lindner has presented a plan for a kind of tax reform, which has provoked a wild echo of reactions. While some speak of delayed relief for broad sections of the population, others criticize that the top earners benefit too much. Meanwhile, the finance minister indulges himself in verbal confusion. “This is not about lightening the burden, but about relinquishing the burden,” Lindner explained Wednesday as he presented his plans. His own guest article in FAZ, in which he explains and justifies the plans, is headlined with the words: “Relief for 48 million citizens”.

However. In any case, there is a lot of money at stake – namely ten billion euros. The most important questions and answers.

Why a tax reform at all?

The current high inflation rates make life more expensive for citizens. Even those who are able to negotiate a wage increase to match inflation are losing purchasing power. Because a higher gross salary ensures that you slip into a higher tax rate, so that in the end you have no more net money in your pocket. Lindner wants to combat this effect of the so-called “cold progression” with his inflation compensation law.

What exactly is planned?

Lindner’s plans are strictly speaking not a structural reform, but an adjustment of limit values. The annual basic allowance, on which no income tax is paid at all, must increase from EUR 10,347 to EUR 10,632 in the coming year and to EUR 10,932 in 2024. The other limit values, from which you slip into a higher tax rate, will also increase accordingly. Finally, the top tax rate of 42 percent will no longer apply from 58,597 euros, but only from 61,972 euros (2023) and 63,515 euros (2024). The so-called wealth tax rate of 45 percent for very good wage earners still applies from 277,826 euros.

The child allowance or child allowance is also increased. But it has also happened regularly in recent years – just like with the basic benefit – because it is required by law.

Who will now be replaced and to what extent?

It depends on how much you earn. In general, the following applies: In absolute numbers, higher earners receive more relief than low earners. In relation to income, the relief is usually higher for low earners. Anyone who pays no income tax at all, because they earn too little (less than the basic benefit) or nothing, has nothing to do with the relief either.

According to the Ministry of Finance, the relief in the coming year for a single person with a taxable income of 30,000 euros will be 172 euros. At 50,000 euros it is 352 euros and at 70,000 euros it is 479 euros. In 2024, the relief for these three examples would be €278, €535 and €730 compared to the current rate.

According to the sharing tariff, a married couple with a total taxable income of EUR 50,000 will be relieved by EUR 282 (2024: EUR 470), with an income of EUR 70,000 by EUR 416 (2024: EUR 660) and by EUR 958 (2024: EUR 1460) with an income of EUR 130,000.

Is it socially just?

Opinions are divided. Finance Minister Lindner emphasizes that people with high incomes benefit less from the cold progression compensation than people with lower incomes, even though their relief in euros and cents is higher. Bottom line, it’s only fair. He gets support from business representatives such as the industry association BDI and the employers’ association BDA, as well as from the CDU/CSU’s parliamentary group.

In the SPD and the Greens, on the other hand, there is sometimes clear opposition to the relief for the higher wage earners. “Tax cuts in the billions, which many wage earners enjoy three times as much in absolute terms as lower wage earners – this is not up to date,” says green finance expert Katharina Beck to the RND newspapers. Social associations also criticized and instead of compensating for the cold progress for everyone, they prefer targeted subsidies for the poor.

This position is also supported by the head of the German Institute for Economic Research (DIW), Marcel Fratzscher. Lindner’s concept favors high earners, as they receive a large share of the state’s inflationary profits, even though inflation hits low earners much more, Fratzscher explained to the Rheinische Post. Lindner’s plan therefore sets “the wrong priorities” and will further exacerbate inequality and social polarisation.”

And what does the chancellor say? In a first reaction, Olaf Scholz made a diplomatic statement. He views the plans with “fundamental goodwill,” a spokesman for the chancellor said. They could be “part of an overall relief concept with a view to the autumn”.

The discussions about who should get which relief have only just begun.

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