Berlin Christian Lindner (FDP) announced great deeds at the turn of the year. He wanted to relieve taxpayers by 30 billion euros during this electoral period, said the Federal Minister of Finance. But on closer inspection, the announcements do not turn out to be great relief.
The better tax deductibility of the pension insurance contributions is prescribed by the courts, the planned abolition of the EEG surcharge is being eaten up by higher CO2 prices.
On the other hand, the burdens that the traffic light coalition secretly and quietly placed on taxpayers at the beginning of the year through “creeping tax increases”, known in technical jargon as “cold progression”, are very concrete and tangible.
“It is strange that, despite high inflation, nothing comes from the traffic light to the cold progression,” says Tobias Hentze, tax expert from the Institute of German Economics (IW). “Compensating for this secret tax increase is actually also a duty in the future.” And not just for this year, but for the entire electoral term, the question arises whether the traffic lights, like the previous governments, want to compensate for the cold progression.
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The cold progression describes the interplay between inflation and the tax rate. For every euro that a citizen earns more, he has to pay more taxes. This is what the German tax system provides.
Higher taxes despite the same purchasing power
This means that the tax burden increases even if salary increases only offset the rate of price increases. In other words: Without a tariff adjustment, the cold progression leads to a higher tax burden with unchanged purchasing power.
In fact, the federal government has been offsetting inflation-related tax increases for a number of years. Basically, that was also planned for this year. Only the government was completely wrong with its inflation forecast.
The tariff adjustment for this year was determined on the basis of a report that was published in autumn 2020. In it, the then grand coalition assumed an inflation rate of 1.2 percent for 2021. It turned out differently: In 2021, inflation soared to 3.1 percent.
Additional charge of 50 euros
According to calculations by the IW, an average earner with a gross annual income of 50,000 euros results in around 30 euros additional burdens per year; for a high earner with a gross annual income of 75,000 euros, it is a good 50 euros.
Only with a low income of 25,000 euros gross annual income does the basic tax-free allowance, which has risen more than inflation, overcompensate the effect, so that there is a relief of around ten euros.
It is not a question of huge sums, but overall the additional burden for all taxpayers this year amounts to less than one billion euros. Nevertheless, the coalition would have had the opportunity to readjust the tariffs in the coalition negotiations. Because at this point in time, the higher inflation rate had long been foreseeable.
“The shift in the tariff structure to avoid the cold progression would have been an opportunity to create a piece of tax justice in the short term and without problems. And the shortfall in income would have been manageable, ”says IW researcher Hentze.
Inflation leads to the comeback of the cold progression
The fact that the traffic light did not even act with this small amount raises the question of how it intends to deal with the cold progression in the future. Because with rising inflation, the cold progression is also experiencing a comeback.
According to calculations by the IW, the costs of reducing the cold progression between 2023 and 2025 amount to a total of 30 billion euros – at least.
Because that is still calculated very carefully, because the IW has expected an inflation rate of well below two percent. If inflation rates continue to rise, the cold progression could also tear significantly larger holes in the budget and investment planning of the traffic light coalition.
The dismantling of the cold progression can not be found in the coalition agreement. The FDP had pushed for it in the negotiations, but the SPD and the Greens were only willing to support this if taxes for high earners were raised at the same time – which the FDP was reluctant to do.
FDP and Red-Green disagree
Against the background of rising inflation ration, the dispute could be fought again by the end of the year at the latest. For FDP finance minister Lindner, the matter is clear: “The Federal Ministry of Finance provides for a complete compensation of the cold progression in the design of the income tax tariffs for the following years,” his house announced on request.
This is also how the FDP parliamentary group sees it. Their vice boss Christoph Meyer says: “Compensating for the cold progression is a matter of course. I assume that our coalition partners are open to this question of justice, after all, the previous federal government had already made the adjustment. “
The Greens are signaling that they will, in principle, help to ease the burden on taxpayers. Due to rising inflation, the topic of cold progression is becoming more relevant again. “It is our job to create a fair balance,” says Katharina Beck, financial policy spokeswoman for the Greens. However, Beck emphasizes above all the adjustment of the basic tax allowances in order to relieve people with small and medium incomes more equitably.
Retroactive discharge is also still possible
The SPD is cautious for the time being. When the new progression report is presented in autumn 2022, the traffic light coalition will “jointly discuss how to compensate for the cold progression,” said its financial policy spokesman, Michael Schrodi.
That is how long taxpayers will have to live with additional burdens. A subsequent adjustment of the tariffs would still be possible now. A retroactive change is “always bad” for employers because it involves a lot of effort, reports the Federal Chamber of Tax Advisors.
But it is not impossible “if a regulation for 2022 is found very soon”. Another option would be to make the adjustment retrospectively in 2023. But then it would have to be all the higher.
More: Standstill in the tax policy of the traffic light