Berlin It is a judgment that could completely overturn the traffic light’s tax and budget policy: This Monday, Germany’s highest finance court will announce whether the solidarity surcharge is constitutional.
Should the Federal Fiscal Court declare the solos unconstitutional, the surcharge on income tax would end up before the Federal Constitutional Court – and could finally tip over. In the worst case, the traffic light would then be missing a whopping double-digit billion amount in the federal budget. Taxpayers, on the other hand, could expect tax refunds of up to several thousand euros.
In 2021, after a reform, the solos were completely eliminated for around 90 percent of all taxpayers. Only top earners and high-earning entrepreneurs still have to pay the surcharge. That’s exactly why the Soli ended up in court.
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Specifically, the Federal Fiscal Court is negotiating a model lawsuit brought by the taxpayers’ association (file number IX R 15/20). With the help of the association, a couple from Bavaria is suing. The lawsuit has now been going on for three years.
>> Read here: Who would benefit from the elimination of the solidarity surcharge
The Nuremberg Finance Court had dismissed the action in the first instance (file number 3 K 1098/19), but allowed an appeal to the Federal Finance Court due to the fundamental importance of the matter. The President of the Taxpayers’ Association, Reiner Holznagel, considers the soli to be unconstitutional: “The solidarity surcharge has meanwhile become a tax on the rich through the back door.”
The plaintiffs accuse the federal government of violating the principle of equality in the Basic Law because only a small minority of taxpayers have to pay the tax. “It’s really an additional income tax,” says tax lawyer Roman Seer, one of the plaintiffs’ representatives.
Solidarity Pact II expired
In addition, the solos had become unconstitutional due to the expiry of the Solidarity Pact II in 2019. The construction of the East was financed with the Solidarity Pact II. Supplementary taxes such as the soli are “purpose taxes”. If the purpose no longer applies, the associated fee would also have to be dropped, according to Seer.
The oral hearing on January 17 lasted just over an hour. The judges did not indicate a trend. They only announced that they wanted to announce their decision this Monday. One thing is clear: If the solos are to be submitted to the Federal Constitutional Court, the judges at the Federal Fiscal Court must come to a clear verdict.
“Mere doubts are not enough,” explains the director of the Institute for Tax Law at the University of Cologne, Johanna Hey. But even if the Federal Fiscal Court approves the solos, the plaintiffs can still file a constitutional complaint.
Ironically, just over two and a half years ago, the current parliamentary state secretaries in the Federal Ministry of Finance, Katja Hessel (FDP) and Florian Toncar (FDP), filed a constitutional complaint against the continuation of the rest of the Solis. The FDP has long been demanding the complete abolition of the solis.
Federal Finance Minister Christian Lindner (FDP) had decided that his department would not be involved in the BFH proceedings – contrary to the position of his predecessor, today’s Chancellor Olaf Scholz (SPD). Lindner’s house did not even send an official to follow the negotiations on site, the Ministry of Finance recently admitted in the Bundestag.
A representative of the traffic light coalition speaks of an “outrageous process”. There is an obligation to defend the solos if a judgment would have serious consequences for the tax authorities and the tax offices.
In fact, the anger in the traffic light coalition shows how much is at stake. If the solos were eliminated, there would be a huge budget hole. The traffic light might not only have to do without the annual income of twelve billion euros, which would make it significantly more difficult to comply with the debt brake.
The minus from the point of view of the Treasury could be much larger. Because in the worst case, the tax authorities would also have to reimburse the taxpayers for the solo income from the years 2020, 2021 and 2022. Because the lawsuit is directed against the collection of the solis from 2020.
Those who continue to pay the solos could be happy about such a judgment. According to calculations by the financial scientist Frank Hechtner for the Handelsblatt, a single person with an income of 8,500 euros would save 1,064 euros a year. With a peak income of 15,000 euros, the sum is 3259 euros.
The SPD and the Greens strictly reject such relief for high and top earners. On the contrary: you want to burden top earners more. The judgment of the Federal Fiscal Court could therefore also lead to a major tax dispute in the traffic light.
More: The most important questions and answers on the solo negotiation