Since the last fundamental reform of corporate tax law in 2008, the German tax system has increasingly lost international competitiveness. With a tax burden on corporations of around 30%, Germany is well above the OECD average. For partnerships, income tax is the decisive factor, which means that the burden can be even higher at the top.
Tackling tax reform - promoting growth, employment and investment
In order to realize new growth prospects, it is necessary to create entrepreneurial room for maneuver and to remove the brakes on growth. The traffic light coalition must put the competitiveness of Germany as a business location on its agenda. The necessary tax reform would provide companies with additional incentives for investment and job creation. For example, the complete abolition of the solidarity surcharge would be an initial relief for companies. After all, companies provide more than half of the revenue from the solidarity surcharge.
An increase in income tax rates, on the other hand, would affect many partnerships. Although the "Corporate Modernization Act" introduced a so-called "option model", there are still some practical hurdles to its application. In this context, there is a particular need for a practice-oriented design of the retention allowance (Section 34a EStG). Without reform, the opportunities for SMEs to build up equity would be limited, affecting their self-financing capacity. In the medium term, this would lead to lower employment and investment.
The income tax rate in Germany is progressive - every additional euro earned is taxed disproportionately. Without regular adjustment, there is a "cold progression" in which the tax burden increases even if income increases only in line with inflation. This particularly affects taxpayers with small and medium incomes. An increase in the basic tax-free allowance and a shift in the tax scale will mitigate the effect of the "cold progression" and strengthen domestic demand. In the medium term, the "middle-class bend" in the tax scale should also be eliminated, as the top tax rate will apply from an income of €58,597 in 2022, which is early and detrimental to performance.
The fulfillment of tax obligations entails considerable bureaucracy for companies. Although the digitization of payroll tax collection is well advanced, it is still not fully complete. It is therefore essential to make tax procedure law more practice-oriented for companies. In the ELStAM process, for example, the functionality of existing process structures must be improved and new functions implemented in a timely manner.
The (re)introduction of taxes is being discussed as a means of financing the debt incurred in the course of the Corona pandemic. Instead of promoting economic recovery from the crisis, however, this would result in additional burdens on companies, which would inevitably be at the expense of investment and thus at the expense of competitiveness, growth and jobs.
For example, a wealth tax would come in addition to profit-based taxation and would even be levied when businesses incur losses and hit companies with low liquidity particularly hard. From a procedural point of view, it would cause problems in the collection or valuation of business assets and has questionable constitutional conformity.
A financial transaction tax would particularly affect non-speculative transactions in the real economy: the purchase and reallocation of investment funds for occupational and private retirement provision would be affected, as would financial transactions by companies that hedge currency or commodity risks. Unilateral action at national level would distort competition in favor of markets whose transactions are not subject to taxation.