Special Tax: Additional Tax for War Profiteers?

Berlin The annoyance of drivers at the pump is currently great. Actually, the fuel discount since June 1 should lead to a relief from the high fuel prices. But after just a few days, petrol prices rose again. Discharge? none.

But there are beneficiaries of the tank discount: the mineral oil companies.

Fuel prices have been decoupled from crude oil prices for weeks. To a large extent, the companies also do not pass on the tank discount to drivers. An ADAC spokeswoman says that “obviously cash register” is being made.

Against the background of fuel prices rising again, the debate about an “excess profit tax” is now rapidly gaining momentum. While Green Party leader Ricarda Lang was ridiculed a few weeks ago when she was the first to make a corresponding proposal, other well-known politicians are now also calling for a special profit tax for companies that benefit particularly from the war. “A tax on war and crisis profits is an instrument that is on the table and that I think is very worth considering,” says Lars Klingbeil, party leader of the largest governing party, the SPD.

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Federal Finance Minister Christian Lindner, on the other hand, categorically rules out the submission of a corresponding draft law. “Of course no,” said the FDP leader on Tuesday. This would make tax law arbitrary, more opaque and even more bureaucratic.

You can no longer capture this spirit. “In Germany there is a tax on profits, but no discrimination in individual sectors,” says Lindner. That would be a fundamental change in tax law, which will not happen with him.

BP, Shell and Co. cash in

In fact, such a tax poses immense problems. In the end, even Germany as a whole as a business location could be damaged if investors lose confidence in the German tax system, warns Dominika Langenmayr from the Catholic University of Eichstätt-Ingolstadt.

In principle, a special profits tax in times of war is not exceptional. Such a tax was already levied in France, Great Britain and the USA during the world wars in order to siphon off profits from companies “which were made either as a result of or during the war and are therefore perceived as unfair”, according to an analysis by the German Scientific Service called Bundestag.

Even now, even flawless supporters of the market economy feel that the exorbitant profits of the oil companies are indecent. In the first quarter alone, the five largest corporations earned around 30 billion euros due to the high fuel prices, more than twice as much as in the previous year.

Some states no longer want to accept the great redistribution at the expense of the citizens and in favor of the oil companies. In March, Italy passed a tax on additional profits from energy companies of 25 percent on sales if they are at least ten percent higher than in the same period of the previous year.

>> Also read here: Countries want regulatory measures against war profiteers

A special tax is also being discussed in the USA. And even the Conservative government in Great Britain wants to introduce a “windfall” tax, i.e. a tax on companies’ chance profits caused by the crisis. BP, Shell and Co. are to pay a special levy of 25 percent on additional profits.

In view of further foreseeable price increases for gas and food, the idea is also finding more and more supporters in Germany. After the Greens, the SPD is now increasing the pressure. Bremen is introducing a Bundesrat initiative this week in which the SPD-led state government is calling on the federal government to “submit a law for the temporary levying of an excess profit tax for the year 2022”. In view of the high burden on society, such a tax is “justified”, according to the application.

Most economists are skeptical

Some economists, such as the Düsseldorf economics professor Jens Südekum, also see it that way. Instead of again financing new relief packages with debt, “a differentiated tax on windfall profits seems more appropriate to me,” he says.

But in the economists’ guild, Südekum is outnumbered with this opinion. Many more left-wing economists also view the proposal with great skepticism. From their point of view, there are a number of reasons against such a tax.

  • The first problem is the definition of overwinning.

When is a win a normal win – and when is it a war or crisis-related “excess win”? In the case of mineral oil companies, this may still be determined at the moment. But farmers, consumer goods companies and car companies are also currently reaping high profits. But are car companies benefiting from inflation or from a post-corona boom? And which comparison periods are used for an excess profit?

There are “huge definition problems” in the survey, says tax professor Langenmayr. A war tax could therefore have a strong market-distorting effect and lead to unequal competitive conditions.

  • The second problem: A tax could also lead to economic damage.

If companies had to pay higher taxes, they could produce less, supply would fall, and prices would rise even more. Example mask production: During Corona, many mask manufacturers probably made excess profits, according to tax expert Langenmayr. But without these companies there would simply have been too few masks.

Such a tax could also inhibit innovation. Companies like the corona vaccine manufacturer Biontech could no longer exist in the future if they had to expect the state to skim off their profits with a special tax.

Economy is categorically against it

Which already affects the next problem: In March, the EU Commission responsible for competition issues gave the green light for a special profit tax. However, a special profits tax could violate the constitution. And even if this is not the case, it could harm Germany as a business location in other ways, warns economist Langenmayr: “Once you start introducing new taxes on successful market participants in special situations, you destroy trust in the tax system.”

>> Also read here: Tax on war profits: Energy companies must show their colors or pay

The economy therefore rejects such a special profit tax. According to Wolfgang Steiger, General Secretary of the CDU Economic Council, the demand for an excess profit tax “reveals how quickly left-wing politicians find excuses for new taxes. Apparently, even the undermining of the basic market economy and the tax system is accepted.

According to Steiger, the regulatory instrument that politicians use to prevent excess profits is not the tax system, “but competition policy instruments to counteract monopolies and cartels.”

Excess Profit Tax: Expected income is low

Measured against the difficulties that the introduction of such an excess profit tax threatens to entail, the expected revenues are small. Most of the mineral oil companies are based abroad. The German tax authorities have no access to their profits.

The corporation tax that companies have to pay in Germany only plays a minor role in the German tax system. In 2021, the state took in around 42 billion euros from the tax, which was just five percent of the total tax revenue. A special tax on excess profits would bring correspondingly manageable revenues.

Even proponents of an excess profit tax, such as the economist Südekum, are not entirely sure of their cause. Such a tax is the “fairest”, wrote Südekum on Twitter. “But I’m also uneasy that the excess profit tax could get stuck at the symbolic level, but could hardly generate any revenue”.

More: Tax burden becomes a location risk for Germany

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