Finance Minister Lars Klingbeil (SPD) plans to present two distinct models for a comprehensive tax reform aimed at providing financial relief to millions of citizens. According to reports, he will bring these different approaches to the crucial coalition summit negotiations scheduled for Wednesday at the Chancellery.
Klingbeil’s first proposal is designed to offer significantly greater tax relief, totaling 28 billion euros. However, this larger scope requires stronger offsetting financing, potentially through an increase in the inheritance tax. His second, smaller model offers approximately 17 billion euros in relief but forgoes the use of higher inheritance taxes for funding.
Examining the impact of the proposals, individuals with small to medium incomes (earning between 40,000 and 60,000 euros annually) stand to save roughly 800 to 900 euros per year under the first model, a benefit that is about half that amount under the second model. On the high end, Model 1 would affect close to one million top earners, while Model 2 is projected to result in about 1.5 million taxpayers having to pay more tax after the reforms.
The structure of taxation differs significantly between the two models.
In Model 1, the overall tax tariff becomes flatter, offering greater relief to low and middle incomes. The top tax rate-currently 42% applicable from just under 70,000 euros-would apply to income starting at €76,508, but the rate itself would climb to 44%. The “wealth tax,” currently 45% for income over approximately 278,000 euros, would be triggered at an annual taxable income of only €200,000, with the rate rising to 49%.
Model 2 adheres more closely to current tax rates, leading to smaller overall relief figures. Under this second proposal, the top rate of 44% would be activated starting at an income of €75,657. The wealth tax would also begin at €200,000, but at a rate of 48%.
Based on calculations by Klingbeil’s financial officials, Model 1 would benefit over 35 million taxpayers, allowing a single person to earn up to 140,000 euros gross annually and still receive tax relief. The second proposal is estimated to benefit nearly 35 million taxpayers, with the threshold for tax relief for single individuals set at approximately 115,000 euros gross per year.
The coalition leaders are expected to present a complete reform package on Wednesday, though negotiations are anticipated to be challenging. Specifically, the Union party has previously opposed a higher top tax rate. Additionally, leaders have proactively cleared Thursday in their schedules as a backup day for discussions.
