Grand Coalition scraps ‘Soli’ tax (almost) entirely

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The parliamentary groups of the GroKo (Grand Coalition) passed a bill in the Bundestag to abolish the solidarity surcharge* for most citizens. This means that from 2021 it will only be paid by high-income earners. The opposition criticized the law for various reasons.

From 2021, most German citizens will no longer have to pay a solidarity surcharge. The tax will be abolished for about 90 percent of tax payers. This was decided by the Bundestag with the votes of the Grand Coalition. For 6.5 percent of the citizens, the solidarity surcharge remains: the higher the income, the more has to be paid. Only the richest 3.5 percent of the population will continue to fully pay it.

“The abolition is possible because German unity has made great progress”, said Finance Minister Olaf Scholz (SPD). “This is also a sign of the success of Germany growing back together”.

10.9 billion less for federal budget

The Soli was introduced after the fall of communism as a special tax mainly for the reconstruction of East Germany. It amounts to 5.5 percent of corporation tax and income tax. In total, it earned the state 18.9 billion euros in 2018. As a result of the partial dismantling of the tax, the federal government will receive around 10.9 billion euros less from 2021.

The cases in which the Soli will continue to be charged also depend on the family constellation. According to the Ministry of Finance, a family with two children will be fully relieved of up to an annual gross wage of 151,000 euros, singles up to an annual gross wage of around 73,000 euros. Especially taxpayers with average incomes will benefit.

CDU wants to scrap tax entirely

CDU MP Olav Gutting spoke in the debate of the “greatest tax relief for many, many years”. The abolition would take place without any counter-financing, there would no hidden increases elsewhere. In the Union’s view, however, the partial abolition is only a first step towards the complete abolition of the solidarity surcharge in the next legislative period. This is a question of political credibility. “Our coalition partner must also address this question,” said Gutting.

Net income distribution in Germany; blue graph = entire population

Scholz defended the fact that top earners must continue to pay. Relief for high incomes would not be fair, he said. Taxpayers with high and very high incomes would have to help finance public tasks. According to the Ministry of Finance, a complete abolition even for the ten percent of the population with the highest incomes would cost an additional eleven billion euros.

SPD member of parliament Wiebke Esdar said that top earners as well as top managers would rightly not be exonerated. “Volkswagen boss Herbert Diess earns 127 times as much as his employees.” On the other hand, occupational groups such as roofers, gardeners, nurses, bus drivers and educators would benefit from the extensive abolition of the tax: “It is a law for the many, not for the few”.

“Hidden wealth tax”

Parts of the opposition, which voted unanimously against the bill, doubted its constitutionality. The AfD politician Stefan Keuter said that he could only encourage every citizen to complain against it. “The Soli must be abolished for everyone.” His AfD colleague Kay Gottschalk spoke of a “hidden wealth tax”. FDP deputy Bundestag leader Christian Dürr criticized that the burden on small and medium-sized businesses would not be reduced – and that in times of an economic downturn. The AfD and FDP’s own proposals aimed at a complete abolition of the tax failed.

According to The Greens and The Left, many would not benefit at all from the extensive abolition of the Soli because they earned so little that they did not pay it in the first place. Green politician Lisa Paus demanded that the partial abolition of the surcharge should be combined with an income tax reform and a higher top tax rate.

*The solidarity surcharge is an income-based tax, which was introduced in the wake of German reunification.

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