Irritating way of doing business: Higher taxes for the rich

fis one of the last bastions of regulatory thinking falling victim to the zeitgeist? The Council of Economic Experts, traditionally a liberal voice for low ones duties and a lean state, calls for higher taxes for higher earners in its new annual report. Optionally, the compensation of the cold progression should be suspended, an “energy solo” introduced or the top tax rate temporarily increased. This is how the costs of the crisis can be met, write the five economic experts. This message is irritating and, to put it bluntly, the government should definitely not listen to it. But it would be fundamentally wrong to sing a farewell to the Council because of this. On the contrary, the body, which in recent years has gone through its biggest crisis since it was founded almost 60 years ago, is currently experiencing a renaissance.

The tax demand is politically unrealistic and economically wrong. It is unrealistic because the coalition party FDP would commit political suicide with energy solos and higher top taxes. The federal government has also firmly promised to compensate for the cold progression. Incidentally, this is all about compensating for the creeping tax increases triggered by high inflation. Especially in times of crisis, citizens must be able to rely on the word of the chancellor and his finance minister.

The rich pay most of the taxes

From an economic point of view, it can be said that the top quarter of those earning more than three quarters of the income are already doing so. Somewhere, even for higher earners, limits have been reached. Especially since a higher top tax rate would also affect the owners of small and medium-sized companies, which have been hit by the pandemic and the energy crisis.

But it would not do justice to the scientists on the Council to leave it at that. Because they underpin their advance with two arguments. First, the first thing to do is fight record inflation. And a tax policy that increases the purchasing power of the wealthy is counterproductive. Of course that’s true. However, the state would certainly not put higher tax revenues on the high edge, but cut it out elsewhere – and thus also fuel inflation. It would therefore be more logical for the Council to demand that the traffic lights finally review all government spending as promised.

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