Leading up to the hearing on inheritance tax before the Federal Constitutional Court, various economists have advocated for major overhauls of the tax structure.
Marcel Fratzscher, president of the German Institute for Economic Research (DIW), argues that the existing special rules within inheritance tax law are obsolete. He calls for the complete abolition of all current exemptions, particularly those related to significant wealth. Furthermore, he insists that deferred payment options must be available to prevent the legislation from undermining the core substance of family businesses.
Fratzscher’s broader proposal emphasizes drawing more tax revenue from wealth overall. He suggests that assets and capital income should be taxed broadly, with few exceptions and moderate rates, noting that the current German system taxes labor unusually heavily while taxing wealth unusually lightly.
Clemens Fuest, president of Ifo, supports a reform and outlines similar, yet more specific, changes. He proposes significantly lowering tax rates, eliminating exceptions for operational business assets and self-occupied real estate, and establishing deferral regulations. Despite concerns raised by business associations regarding a possible undue interference with company assets, Fuest dismisses this fear as exaggerated. He believes that a low tax rate, around 10 percent, combined with generous deferral measures, is viable.
Fuest insists that owner-occupied property should be taxed equally to rented property. He argues that by the ages of 50 to 60, the ancestral home holds less financial weight for the inheritor than it once did, and tax exemption should be restricted only to a marital partner who is already residing in the home.
Fuest identifies the principal deficit of the current inheritance tax laws-specifically those special regulations-as the unequal distribution of the tax burden. He points out that currently, medium-sized inheritances are heavily burdened by the tax, while larger inheritances structured as business assets face minimal or even no taxation.
The discussions scheduled to begin at the Federal Constitutional Court on Monday will specifically address these issues, including whether business heirs are being excessively favored by the current laws.
