The chair of the German Council of Experts for Economic Analysis, Monika Schnitzer, is advocating for a fundamental reform of inheritance tax, deeming it an “inescapable” necessity. While the Social Democratic Party’s (SPD) recent proposal has injected fresh energy into the debate, Schnitzer argues in a commentary for the Handelsblatt that reform is unavoidable regardless of economic conditions or political expediency.
The impetus for change stems from repeated criticisms of the current system by the Federal Constitutional Court, with an ongoing legal challenge further solidifying the need for adjustment. Schnitzer specifically targets the existing framework’s systematic advantage given to large asset transfers, particularly concerning business assets, which she believes constitute an inequitable application of the tax code.
Currently, taxable transfers averaging between €100,000 and €200,000 are subject to around 13% in taxation. However, the effective tax rate plummets to approximately 8% for exceptionally large transfers exceeding €20 million. This disparity, Schnitzer contends, directly contradicts the principle of ability to pay and exacerbates wealth inequality, a particularly pressing concern given that between 30% and 50% of private wealth in Germany originates from inheritances and gifts.
Dismissing concerns that a more equitable taxation of business assets could jeopardize companies, Schnitzer points to empirical evidence that fails to substantiate these fears. International studies reveal “no systematic negative effects on employment or investments”. She further suggests that concerns regarding potential liquidity burdens at the time of transfer can be mitigated through generous installment plans, a provision already included within the SPD’s draft proposal, which she suggests is a more targeted approach than the existing exemptions which distort business decisions.
Schnitzer’s call represents a significant challenge to the status quo, potentially sparking a wider political discussion about wealth distribution and the fairness of the German tax system and placing pressure on the government to address the perceived discrepancies highlighted by the Council of Experts.