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Cold progression: Lindner only wants to return some of the Treasury's inflation gains to the Germans


Because prices rose more sharply in 2021 than planned, citizens now have to pay billions of euros more in taxes. Finance Minister Lindner can use the money - but is he entitled to it?

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Finance Minister Christian Lindner

Photo: Reto Klar / FUNKE Photo Services / action press

According to SPIEGEL, finance minister Christian Lindner (FDP) does not want to return all of the taxpayer's gains from inflation over the past year to taxpayers. When adjusting the tariffs, the Federal Ministry of Finance (BMF) assumed inflation of 1.2 percent for 2021, in fact it was 3.1 percent. After a wage increase that only compensates for their loss of purchasing power, taxpayers slide into higher progression levels.

Economists refer to this phenomenon as "cold progression."

It comes about as a result of a combination of the tax rate and price increases.

A so-called progressive tariff applies to income tax.

This means that taxpayers have to pay a larger share of every additional euro earned to the tax office.

If workers get a pay increase that only compensates for inflation, they aren't really better off, but they have to pay higher taxes.

Additional income of two billion euros

Lindner's experts put the additional revenue for the tax authorities through the cold progression at around two billion euros. The BMF experts justify their reluctance to reimburse this money to the citizens with the fact that in previous years the state had sometimes assumed inflation rates that were too high when adjusting the tariffs. As a result, taxpayers have been unduly relieved. Nevertheless, the Treasury refrained from collecting this money again later. Therefore, there is now no reason to return the excess money collected.

Lindner can use the additional income because he still has to raise money for a number of projects from the coalition agreement.

Unlike the income limits of the tariff, Lindner has no choice when adjusting the tax-free subsistence level.

Specifications of the Federal Constitutional Court force him to raise the basic allowance according to the actual rate of price increases.

When asked, the Federal Ministry of Finance stated that it was "keeping an eye on the problem".


Source: spiegel

All business articles on 2022-01-14

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