German Tax Reform

WSJ.com – Schroeder’s Moment of Truth
I haven’t had the time or energy to blog much this weekend, and when I have it’s been poorly written. Just not into it. However, there are a few articles I’ve been meaning to blog on an I’ll just provide an excerpt and a brief comment.

More good news out of Germany. Hard to believe there’s a country with a more complex tax system than the U.S. According to the article “Germany produces 70% of the world’s academic tax literature”. That’s quite an accomplishment and an opportunity for real savings. I hope they take advantage of it.

Will Germany’s armies of tax advisers soon have to find new jobs? For the sake of the country’s economy and the sanity of her citizens, one can only hope.

According to Georg Crezelius, professor for tax law at the University of Bamberg, Germany produces 70% of the world’s academic tax literature. The country’s tax code fills thousands of pages. Every year, millions of tax payers sweat over incomprehensible tax forms only to be rewarded with a bill that, including social security, takes away about half of their income. “There are only two people left who still understand the system. One is dead and the other is in therapy.” That’s how Peer Steinbrueck, governor of North Rhine-Westphalia, Germany’s most populous state, recently summed up the madness.

But all of a sudden there is a glimmer of hope that those volumes of rules and regulations may soon be reduced to a few pages. The Christian Democrat’s Friedrich Merz, the opposition’s party finance expert, proposed to scrap the loopholes in Germany’s income tax system. In return, he wants to cut taxes to three simple rates of 12%, 24% and 36%, lessening the impact of a progressive tax system that punishes people for working more. The top bracket now stands at 45%. The Free Democrats, traditionally Germany’s most liberal party, submitted a similar bill to parliament this week.

The proposals caught Social Democratic Chancellor Gerhard Schroeder unprepared, forcing him to promise to soon present his own ideas. After last month’s bipartisan agreement on some timid tax cuts and labor market deregulation, the government and the opposition parties pledged to work together to overhaul the tax system by next year.

Just a few years back, similar tax proposals were ridiculed as pipe dreams. But the mood has changed. After a decade where “Reformstau,” German for reform blockage, was the political buzzword, there is now broad consensus across the media and the public that the country needs to change — and not just its tax system. All major parties profess that they are committed to economic reforms.

One can only hope.

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