Is the Soli an unconstitutional wealth tax?
EA lone tax official supported by a clerk at the Aschaffenburg tax court will fight for the solidarity surcharge this Tuesday before the Federal Tax Court (BFH). The man was originally supposed to receive prominent support from Berlin. The Federal Ministry of Finance, then still led by Olaf Scholz (SPD), had joined the legal dispute over the “soli” on the part of the tax office. But last week the current Federal Minister of Finance, the FDP chairman Christian Lindner, revised the decision of the current Federal Chancellor: The Federal Ministry of Finance will not send a delegation to Munich for the revision hearing to defend the solidarity surcharge – which the coalition partners SPD and Greens would like to retain.
The Federal Ministry of Finance only participates in around 10 percent of the revision procedures anyway, as the Federal Finance Court announced. But when Lindner now demonstratively distanced himself from the “soli”, the plaintiffs got tailwind from a political point of view – a married couple from Bavaria who are supported by the taxpayers’ association. For the legal assessment of the controversial surcharge, however, it does not matter that the Ministry of Finance will not support the Aschaffenburg tax officials.
FDP constitutional complaint from opposition times
So far, the Federal Fiscal Court has held the “soli” to be constitutional, most recently in a 2018 decision on corporate tax. However, in a 2011 decision, the BFH issued a warning that the surcharge as a supplementary levy may only cover “temporary financial needs”. If the top financial judges conclude this time that the surcharge is now unconstitutional, the Federal Fiscal Court would have to obtain the decision of the Federal Constitutional Court, as suggested by the plaintiffs. Among other things, a constitutional complaint by the Parliamentary Secretary of State for Finance Florian Toncar (FDP) and the FDP parliamentary group leader Christian Dürr is pending, which the two FDP politicians had filed during opposition times.
The solidarity surcharge was introduced in 1991 to deal with the financial challenges of reunification. Originally, the supplementary fee was limited to one year, but as is well known, it did not stop there. The Federal Fiscal Court now has to decide, among other things, on the constitutionality of the so-called ablation model in the Solidarity Surcharge Act of 1995: Since the 2021 assessment period, only around 10 percent of taxpayers have had to pay the surcharge. Up to a taxable annual income of 61,717 euros, taxpayers are completely exempt from the supplementary tax. In the so-called mitigation zone up to a taxable income of 96,409 euros, 6.5 percent of those subject to income tax benefit from a reduction in the “soli”.
A small part of the so-called higher earners should continue to pay the solos in full indefinitely. This includes the plaintiffs. The “soli” will also continue to be levied on corporation tax and the withholding tax. According to the Federal Ministry of Finance, the income from the solidarity surcharge will amount to more than 18 billion euros for 2020, around 11 billion euros for 2021 and almost 10 billion euros for 2022 by the end of November. The Federal Court of Auditors therefore warned years ago that the legal dispute contained financial risks “that cannot be dismissed out of hand”: the federal government was threatened with tax repayments worth billions.