The planned reform of the income tax is once again sparking a heated political debate, following recent statements from Federal Finance Minister Lars Klingbeil (SPD). While the goal of easing the tax burden on small and medium-income earners is widely acknowledged, the political consensus on how to finance these changes remains highly contentious.
The Christian Democrats (CDU) and Christian Social Union (CSU) have explicitly rejected any plan that involves redistributing funds between taxpayers. Mathias Middelberg, the Deputy Parliamentary Group Chairman for the CDU, stated in the press that full revenue-neutral reform within the existing tax system is impossible. He warned that increased tax burdens could destabilize growth, necessitating that a significant portion of the necessary funding come from government budget savings. Middelberg pointed specifically to the Federal government’s financial aid to states and municipalities, noting that these funds have risen dramatically from 8 billion to nearly 60 billion euros over the last seven years, suggesting room for consolidation.
Conversely, Finance Minister Klingbeil reiterated that the reform aims to provide substantial relief to middle and low-income earners, arguing that those “who keep the shop running every day” must end up with more money in their pockets. However, he emphasized that this relief must be financed practically, asserting that high earners with six-figure salaries must contribute accordingly.
Supportive of a reform, the German Confederation of Employers’ Associations (BDA) also weighed in. Steffen Kampeter, the group’s CEO, criticized proposals that universally increase the tax burden, arguing that such measures unfairly penalize skilled workers and middle managers who already contribute above average amounts to tax revenue. Kampeter stressed that Germany is already expensive in international labor comparisons, and additional burdens would worsen the location problem and encourage the outflow of labor and value creation abroad. Despite this caution, the BDA conceded that a tax reform was necessary and that rate reduction for small and medium incomes was overdue.
Criticism on a different front came from the Green Party. Katharina Dröge, the party’s parliamentary group leader, advised that to genuinely help low-income people, the focus should be on reducing social security contributions first, since many workers earn so little that direct tax cuts have no effect. She accused the SPD and Klingbeil of pursuing an “dishonest and elitist policy” by repeatedly overlooking the lowest-income workers.
Adding to the complexity of the debate, prominent economist Veronika Grimm suggested that the government suffers from a “massive knowledge problem” regarding realistic structural conditions, as it continues to raise state spending while suggesting financially unrealistic funding options because no sustainable growth is returning.
On the funding side, the German Social Welfare Association (SoVD) favorably responded to Klingbeil’s initiative. SoVD Chairwoman Michaela Engelmeier demanded that measures be introduced to allocate the private wealth accumulated even during recent crises toward funding the general welfare. She advocated for reforming the inheritance tax, equally taxing dividends, appropriately taxing large corporations, and also raising top tax rates for the wealthy and super-rich, while also calling for the reintroduction of a wealth tax.
Currently, the SPD and the Union plan to implement a major tax overhauling starting January 1, 2027, with the general objective of relieving 95 percent of employed individuals.