The president of the Munich Ifo Institute, Clemens Fuest, sees only limited potential in State Secretary Carsten Linnemann’s (CDU) proposal to ease the income tax burden. Linnemann suggested raising the threshold for the top tax rate from about €68,000 to €80,000 of gross annual income to flatten the so‑called “mid‑market belly”.
“It really depends on how much relief you want to give taxpayers” Fuest told the “Handelsblatt” (Monday edition). A shift in the tax rate so that the provisional top rate would be applied later would provide “some relief”. When combined with flattening the mid‑market belly, the relief would, according to him, be even greater.
Fuest remained skeptical about the offset financing. “You can increase the top rate, but it is hard to finance a noticeable relief for the middle class with it” he said. The number of taxpayers with very high incomes is clearly smaller than that of the middle class, and increasing the rate would “quickly burden medium‑sized companies”. Given Germany’s caution toward investment, he cautioned that one must weigh whether to pursue this route. According to Fuest, sustainable tax cuts are only possible if state spending is reduced. “If you want to cut taxes, you have to cut public spending”.
