The president of the Munich Ifo Institute, Clemens Fuest, thinks that the Federal Government’s proposal to ease the income tax relief is of limited potential. Government Secretary Carsten Linnemann (CDU) suggested raising the threshold for the top tax rate-from roughly €68,000 to €80,000 of annual gross income-in order to flatten the so‑called “middle‑class hump”.
Fuest told the “Handelsblatt” (Monday edition) that the amount of relief depends on how much taxpayers are meant to be alleviated. He said a postponement of the application of the provisional top rate would “already provide some relief”. When that postponement is combined with a flattening of the middle‑class hump, the relief would be “greater”.
Fuest remained sceptical about the counter‑financing. “Certainly the top rate can be increased, but it is hard to use it to finance a noticeable relief for the middle class” he said. The number of very high‑income taxpayers is far smaller than that of the middle class, and raising the rate “quickly burden[s] small and medium‑sized enterprises”. In a context of investment reluctance in Germany, the question comes down to whether that route is viable.
According to Fuest, sustainable tax cuts are only achievable if state spending is reduced. “Those who want to cut taxes must also cut state spending”.