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FDP leader Christian Lindner: fairytale self-financing as a goal
Photo: Chris Emil Janssen / imago images
The FDP proposes significantly lowering taxes for companies.
This will bring so much growth and employment that, in the long term, tax revenues will be as high as they were before, meaning that the matter would finance itself.
In the beginning, you could also accept a few higher government deficits, i.e. finance them on credit.
Fairytale.
Now it is probably a coincidence that the researchers at the Ifo Institute in Munich, in their scientific endeavors to advance their knowledge, came to the conclusion just this week that "lower taxes for companies" would bring "more employment and higher growth". And that tax revenues will even return to their original level in the long term. This leads Ifo President Clemens Fuest to the recommendation that the state can see the temporary tax shortfalls as a kind of investment, i.e. accept it. There are coincidences. So shortly before the general election.
Now, of course, it would be naive to assume that researchers do not occasionally feel the tendency to bring their own convictions into the process of political decision-making in a federal election.
Clear.
It's a bit stupid if, on closer inspection, the results of your own calculations don't match the message that well.
Two variants, two effects
What the Ifo researchers have actually calculated is the effect of two different variants on relieving companies. The first is about companies having to pay lower tax rates per se - no matter what they do with the money. A second possibility is to link the relief much more closely to what the companies do with it or to the fact that they use the money for future investments. The first is about lowering the corporate tax rate that companies have to pay on their incomes, for example. Second, firms can save money by investing - by allowing them to write off the investment faster.
What the researchers found is that both lead to more investments and jobs. But that's only really impressive with the second variant - when the gift from the tax authorities is tied to investments. Sure: only those who invest will also benefit. According to the estimates, the finance minister will lose 17 billion euros in revenue if the depreciation periods are shortened from ten to four years. In the long run, however, this will bring so much growth that the loss of income will eventually be evened out again. It even comes out as a plus. Great.
The result of the tax rate reduction is significantly less great.
To put it mildly.
If the corporate income tax rate drops by five percentage points, the tax authorities immediately lack almost 14 billion euros.
And: at best, a third will come back in, according to the Ifo model calculation.
Because the companies do not (have to) invest a large part of the money.
The rest remains as government debt.
How was it after Reagan and Trump with the national debt?
This raises the question of whether the money is then well invested - and the Ifo bills are really confirmation for the FDP: the Liberals also find it good when write-offs are made easier; In the program, they just rely fairly clearly on the tax rate variant that is not tied to investing - and anything but self-financed. The thing threatens to achieve little, but to end dearly.
Contrary to what the in-house headline suggests, on closer inspection, the progress made by the Munich researchers does not really serve as confirmation of the FDP dictum that tax (rate) cuts are a kind of self-runner. The thesis was already submerged in reality a few decades ago in the USA - where it became known at the time via the Laffer curve. After the Reagan tax cuts, the United States had record national debt for years. Similar to after the even rumbling tax cuts by Donald Trump in 2017 - even after that there was hardly any higher investment, but more national debt. Or after the red-green tax reform: investment boost? Are you kidding me? Are you serious when you say that. It doesn't help to think about the fact that lower tax rates could somehow still be a signal in tax competition,as the Ifo researchers oracle at the end of their study.
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There is something misleading to suggest that lower rates and better depreciation terms together are self-financing.
It's like recommending Nasivin and foot cream to someone who has a cold - and pointing out that the two work together.
The foot cream can then also be omitted.
The tough model estimates speak against any miracle effect when it comes to lowering tax rates for companies. And pretty unequivocally in favor of trying cheaper depreciation options. These are not about gifts that are distributed to shareholders who are already well-funded in case of doubt, but about giving perks specifically and only to those who also invest in new systems and jobs - and thus (usually ) Do something directly meaningful for the economy and society.