The federal Ministry of Economic Affairs, led by the CDU, is pushing the Federal Minister of Finance, Lars Klingbeil (SPD), to address the issue of “bracket creep” (cold progression) in 2027, in addition to the existing planned tax reform. This information was reported by the “Rheinische Post”, citing a letter from Economic State Secretary Thomas Steffen to his counterpart in the financial sector, Rolf Bösinger.
In the letter, Steffen stated that the current federal government would be the first since 2015 to not legally mandate the complete elimination of bracket creep, resulting in a tax increase that is hidden and driven by inflation. To prevent this, the core parameters of the tax scale should be adjusted according to the seventh tax progression report, which Steffen’s office is preparing and is scheduled for release in autumn 2026. Furthermore, Steffen suggested discussing an automatic mechanism to offset inflation, often referred to as a “tax scale on wheels.” Currently, the mitigation of bracket creep in the draft tax reform law is only addressed superficially.
To alleviate the burden on small and medium-sized enterprises that are subject to income tax as partnerships, Steffen also called for implementing improvements to the capital accumulation privilege and the so-called options model, which were agreed upon in the coalition agreement. These statutory changes should take effect from 2027, running parallel to the Income Tax Reform Act. Additionally, he advocated that a broader tax structure reform should examine a significant adjustment to the income threshold for the top tax rate and the abolition of the residual solidarity contribution.
The Ministry of Economic Affairs expressed a clear expectation that fiscal policy would complement the federal government’s growth agenda through targeted tax relief. It emphasized that additional burdens, particularly through direct taxation, must be rejected. This point was made especially because higher marginal tax rates at the highest end of the income distribution would not likely lead to extra revenue in the medium term, given the already heavy taxation and corresponding reactions. Moreover, inflationary pressures leading to progression-related tax burdens should be avoided.
