– Thoughts on Strategy and Management

Key facts regarding the German top income tax rate

Today the German newspaper “Handelsblatt” presents an appalling opinion from Peer Steinbrück, the former Minister for finance. Here Mr. Steinbrück suggests increasing the top income tax rate in Germany in order to generate additional revenues for the authorities. Well, this is far, far away from saving money – a more feasible approach which you can hear very often when politicians present proposals for better public finance management. I won’t discuss the German tax level in general, but I would like to show that the term “top income tax rate” is misleading and does not express the true situation. Some people would argue that the “top income tax rate” addresses only those people, who have extraordinary income, but:

  • 1.74 million tax payers are addressed by the top income tax rate in Germany
  • Revenues generated from this group account for 42 percent of the total income tax.
  • In Germany top income tax rate starts with 52,882 EUR salaries; hence it addresses skilled engineering workers and other professionals, too. In Norway the top income tax rate starts with 93,000 EUR, in the state of New York with 270,000 EUR.
  • In 1958 the top income tax rate started with app. 60,000 EUR (120,000 DM). At that time the average salary accounted for 2,700 EUR.
  • In order to achieve the same economic level of 1958, today’s top income tax rate should start at 1.5 million EUR.

Today the so called “top income tax rate” is not a top income rate anymore.

Note: All data from Inacker, M., & Schrinner, A. (2012). Peer Steinbrück für Steuererhöhung. Handelsblatt, 2. April 2012, p. 1 and p. 6

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