The prospect of increased inheritance and wealth taxes in Germany is drawing sharp criticism from the head of the influential Ifo Institute, Clemens Fuest, who warns that such measures risk exacerbating the country’s economic downturn. While acknowledging existing inequities within the current inheritance and gift tax system, Fuest argues that raising the overall tax burden would be demonstrably counterproductive.
Speaking to “Welt” Fuest responded directly to proposals put forth by the Jusos, the youth wing of the Social Democratic Party (SPD) and the Seeheimer Kreis, a group of moderate lawmakers within the ruling coalition. These proposals aim to address perceived fairness gaps in the current tax structure. However, Fuest contends that increasing taxes on wealth and assets, or raising corporate taxes, would inevitably stifle investment, a crucial factor in Germany’s economic recovery.
“Reform is certainly needed in the area of inheritance and gift tax. There are loopholes and inequities that need to be addressed” Fuest conceded. “However, that does not mean increasing the tax burden overall. Doing so will further depress investment. While policymakers are free to make that choice, it carries the significant risk of deepening the existing economic crisis.
His remarks signal a growing debate within Germany’s political landscape. The pressure to address income inequality and perceived injustices in wealth distribution is intensifying, particularly among younger voters. However, economists like Fuest are cautioning against short-term populist solutions that could ultimately undermine the long-term health of the German economy.
The warning carries significant weight given the Ifo Institute’s reputation for providing impartial economic analysis and influencing policymaking within Germany. Fuest’s intervention raises questions about the feasibility and potential consequences of the ruling coalition’s priorities and highlights the delicate balance between social equity and economic stability in a challenging global environment. The proposed tax hikes are likely to trigger a more protracted and complex discussion, potentially fracturing the fragile consensus within the governing alliance.