Lindner's relief package: who really benefits - and who doesn't
Created: 08/10/2022 15:34
By: Moritz Serif
Finance Minister Lindner has launched a relief package.
But who really benefits?
Is it the little ones?
Or the big ones?
Berlin - "48 million people would benefit from the proposed compensation for cold progression.
Employees and low earners, pensioners and the self-employed, students with taxable part-time jobs and above all families benefit.
Because child benefit and the child allowance are also affected by inflation, they should also be adjusted,” promises FDP Finance Minister Christian Lindner in a guest article for the
Frankfurter Allgemeine Zeitung
.
But who really benefits?
Is it the little ones?
Or the big ones?
In order to clarify this, we have to deal with the tax law concept of cold progression, since the finance minister would like to lower it.
If employees in Germany get a salary increase, the tax rate also increases.
However, the tax burden increases faster than the salary.
Lindner's relief package: what is cold progression?
If you get a three percent salary increase, for example, you have to pay four or even five percent more taxes.
In this example, the net increase is less than the gross increase.
Consequence: The real wage falls - the cold progression has struck.
People with low or medium earnings are particularly affected by the "secret tax increase" - i.e. a taxable income between 9985 and 58,596 euros.
Income between 0 and 9984 euros: tax burden at 0 euros, as tax-free income.
Income between 9,985 and 14,926 euros: marginal tax rate between 14 and 24 percent.
Income between 14,927 and 58,596 euros: marginal tax rate between 24 and 42 percent.
Income between 58,597 euros and 277,825 euros: marginal tax rate between 42 percent.
Income 277,826 euros: tax rate remains at 45 percent
Anyone who earns at least 58,597 euros benefits from a sideways progression curve.
The tax rate remains at 42 percent - only when the taxable income increases to 277,826 euros does the top tax rate of 45 percent apply.
In contrast, the tax rate rises much faster on low incomes.
Anyone who earns between 9,985 and 14,926 euros has to pay a tax rate of between 14 and 24 percent.
Between 14,927 euros and 58,596 euros, a jump from 24 to 42 percent is even possible.
As a result, higher earners are significantly less affected by cold progression.
Finance Minister Christian Lindner presents his relief package.
© IMAGO/Leon Kuegeler
Who benefits from Lindner's relief - and who doesn't
Now let's look at Lindner's relief package.
The Minister of Finance would like to increase the basic allowance, i.e. the minimum subsistence level on which no taxes are due, from 10,348 euros to 10,633 euros next year.
In the year after next, the contribution is to rise to 10,933 euros.
The top tax rate of 42 percent is to apply to taxable income of EUR 61,972 in 2023 and EUR 63,521 in 2024.
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People with higher incomes pay higher tax rates, so they receive a larger percentage of the tax relief than those on lower incomes.
People on very low incomes don't have to pay income tax at all - they don't benefit from the Treasury Secretary's relief.
Lindner would like to support 48 million people - but conversely, over 30 million people go away empty-handed.
Among them are, of course, the unemployed, pensioners and students.
Lindner's relief: Low earners get the least
Low earners with an annual salary of 20,000 euros will get 115 euros more from the gross next year, in 2024 it will be 198 euros.
Whoever earns 40,000 euros a year will save 250 euros in the coming year and 391 euros in 2024.
For high earners who pay the top tax rate with an income of around 60,000 euros, the totals are 479 euros (2023) and 730 euros (2024).
According to the ministry, the average relief for 48 million people is 192 euros.
Lindner's relief package has drawn criticism.
"Christian Lindner's tax concept falls far short of the mark," said Stefan Körzell, head of the German Trade Union Confederation of the dpa.
The basic allowance must rise to 12,800 euros so that small and medium-sized incomes are relieved.
SPD, Greens and trade unions criticize the relief package
Green parliamentary group vice-president Andreas Audretsch said: "Tax cuts in the billions, from which top earners benefit three times as much as people with low incomes, ignore reality." SPD parliamentary group vice-president Achim Post is also not satisfied.
"Another strong relief impulse to the middle of society is right and necessary.
However, the measures proposed by Federal Finance Minister Lindner would relieve high incomes particularly strongly and are therefore not yet entirely socially balanced.
We should make improvements here.” (Moritz Serif).