A newly released study by the German Institute for Economic Research (DIW) casts significant doubt on the viability of a proposed flat-tax system for inheritance tax, revealing it would likely result in a substantial reduction of state revenue. Commissioned by the Green Party parliamentary group and reported by “Handelsblatt”, the study directly challenges the growing political pressure, driven by economists like Lars Feld and Ifo president Clemens Fuest, to simplify the inheritance tax code with a flat rate.
The proposal, gaining traction as a potential response to an upcoming Constitutional Court ruling, suggests utilizing a uniform tax rate of ten percent, coupled with the elimination of existing tax advantages for business successors. However, the DIW’s findings indicate that such a rate would slash inheritance tax revenue – currently totaling €12 billion – by a staggering €4.4 billion, representing a 36% decrease. Even the removal of business succession benefits doesn’t offset this substantial shortfall.
According to the DIW’s analysis, a flat-tax rate would only become revenue-neutral at a considerably higher rate of 16 percent. A rate of 18 percent would generate an additional €2.2 billion in revenue, while a rate of 25 percent would yield a substantial €8.3 billion increase. This stark contrast underscores the complexities of the issue and highlights the potential for unintended consequences.
“At first glance, a uniform tax rate may appear straightforward” stated Katharina Beck, Green Party finance policy spokesperson. “However, a flat tax of ten percent, leading to significant revenue losses and disproportionately impacting smaller inheritances, absolutely cannot be a viable solution.
The DIW proposes alternative reforms, advocating for the removal of business succession benefits while simultaneously softening the impact of the tax burden. Suggestions include allowing companies extended periods for paying inheritance tax installments and linking tax collection to company profits. The findings inject a critical perspective into the ongoing debate, raising serious questions about the political and economic feasibility of a simplified inheritance tax regime and emphasizing the need for more nuanced approaches.
