A recently published study by the German Institute for Economic Research (DIW) casts significant doubt on the viability of a proposed flat-tax inheritance system, revealing it would likely result in substantial revenue losses for the state. The study, commissioned by the Green Party parliamentary group, directly challenges the growing political momentum behind the idea, frequently championed by economists such as Lars Feld and Ifo Institute President Clemens Fuest.
The proposed flat tax, envisioned as a simplification of the current inheritance tax system by applying a uniform rate – often suggested around ten percent – would slash state income by approximately €4.4 billion, or 36%, even if existing tax advantages for business heirs were eliminated. This dramatic decrease in revenue contradicts the purported benefits of streamlining the system and potentially undermines ongoing debates about broader tax reform.
According to the DIW’s analysis, a flat-tax rate would only become revenue-neutral at a significantly higher rate, 16 percent. A rate of 18 percent would generate an additional €2.2 billion in revenue, while a rate of 25 percent would see revenues increase by a substantial €8.3 billion. These findings force a critical re-evaluation of the flat-tax concept, which initially appears attractive for its perceived simplicity.
“At first glance, a uniform tax rate may seem straightforward” commented Katharina Beck, Green Party finance policy spokesperson. “However, a flat tax of ten percent, which leads to significant revenue losses and disproportionately burdens smaller inheritances, simply cannot be a solution”. The proposed system, she contends, would unfairly impact smaller estates while failing to achieve the desired fiscal goals.
The DIW study proposes alternative approaches, arguing that while eliminating advantages for business heirs remains desirable, the burden of inheritance tax should be alleviated through more flexible payment structures. Suggestions include allowing companies to amortize inheritance tax obligations over extended periods and tying tax collection to the success of the business itself – a move aimed at mitigating the potential impact on business investment and growth. The findings underscore the complexity of inheritance tax reform and highlight the need for a more nuanced approach than a simple, potentially damaging, flat-tax system.