Friday, March 6, 2015

Heat on the Solidarity Tax?

I wrote a brief introduction last fall on the German Solidarity Tax.  It was designed after the fall of the Berlin Wall as a vehicle to help rebuild DDR (East Germany).  Roughly.....a 5.5-percent tax on top of what you owed....was tossed onto your yearly income tax.

Curiously, it was never designed as a 'forever-tax'.  It was meant to come to an end one day. one will really explain in detail.

In recent months, the CDU/CSU folks have talked up this new idea. their mind.....will be the end of the tax.  From 1998 to 2009, it generated around 185 billion Euro.

While the CDU plan attracts a lot of public sentiment and might get the edge......the SPD Party has taken a different approach.  They'd like for the tax, in some form, to continue on.....maybe not at the 5.5 percent level, but the majority needs to stay.  Their hook onto the public sentiment?  They'd like for the money to be split up between the sixteen German states in some fair manner.  Free revenue for state renovation or infrastructure projects (bridge money, so to speak).

For the small-time wage earner, the yearly tax bill wasn't a big deal, and this 5.5 percent attached to his situation was minimum.    This is the guy who'd buy more on the SPD deal of more bridge money.

For the middle-class wage earner, this probably adds up to somewhere in the 200-to-400 Euro range.  It's enough to attract the attention and make it somewhat interesting.

For the wealthy folks who pay 20,000 to 100,000 in normal taxes a year?  It would amount to 500-to-5,500 Euro a year.  It's a tidy sum for a small business guy or someone who pulls a decent income.

There was a fair amount of frustration in Germany when the Solidarity Tax came up originally.  It wasn't a happy moment for most Germans.  Infrastructure improvement in eastern Germany?  It's come to virtually every roads, new libraries, new schools, and they almost like like most communities in the western half of Germany.  I should can still find various communities that look like some third-world country, but it's rare.

How much will this tax play into politics over the next five years?  A good bit.

Every political party will talk about this, and try to sell the public on continuing the tax.....for new infrastructure.  The general problem will be that the upper-class will be the ones contributing to the bulk of this continued tax....and they don't exactly reside in a fair number within the sixteen German states (something that people will obviously point out).  So, suggesting there is some fairness angle to the's not that fair.  And the projects?  After a while, you might start to note various art projects, concert halls, big new airports with few customers, and an odd feeling that this is simply a building slush fund for various states.

Bottom line?  The Solidarity Tax is a magnet for discussion and frustrations.

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