A guest contribution by Dr. Helmut Däuble
How can a traffic light coalition come together when the FDP renounces tax increases to one condition not, has made a non-negotiable condition for joining a political alliance and the SPD and the Greens defend the principle that social justice requires an increase in taxes for the wealthy? Red-Green have promised their respective constituencies the (re-) introduction of a wealth tax and an increase in income tax for those earning well above the average. Can there be a way out of this dilemma? Or to put it another way: Can a red-green-yellow policy be conceived that at the same time reduce material inequalities, respect the performance-oriented incentive system of market liberalism and also focus on climate protection?
The vast majority of those involved in the current exploratory talks for red-green-yellow consider it almost unattainable. It seems that the parties involved have to give away their promises in order to come to a common denominator. This supposed one Mission impossible However, it can be done without breaking a word if those involved concentrate on new approaches and use concrete examples to explain what something like this could look like. In order to make it clear that it is by no means a question of squaring the circle, the participants need clear “best practice examples” from which compromises or solutions can be discussed in order to get out of the mess.
In order to show at least one such realistic prime example, we have to take a few steps back, more precisely to the 80s. There is a model that can now be used to resolve the “traffic light dilemma”. This was the performance-oriented reorganization of the student and pupil BAföG, which until then had largely been awarded as a grant. The changeover to a full loan, which was brought about by the Union in the lead, was to be moderated by giving particularly efficient university graduates discounts: whopping discounts were given for graduation within the standard period of study, for the most successful graduates and for those who were able to repay quickly. Applying this model to the present of a possible traffic light coalition, burning questions of social justice can be combined with market-liberal answers including climate protection.
If one uses such a discount system for a reform of inheritance taxes on bequeathed companies, an exemplary approach emerges that all three traffic light partners could represent: The basic consideration would be that the sometimes very high company discounts can least be justified on the success of the individual performance of the heirs are. A premise from which liberals should also be able to gain something, since they justify material differences mainly through the idea of meritocracy, i.e. through the legitimation effect of personal achievement.
The state as co-owner
So where can the leverage for social and ecological tax policy be applied in the case of company inheritances without the estate taxes having to be increased?
By determining these taxes in a completely regular, namely full, amount, as is the case with other inherited assets. So far, inheritance taxes on company estates with the understandable argument that such a tax jeopardizes jobs, investment and innovation opportunities through the withdrawal of capital have in fact only been reduced or in some cases not levied at all. Such an exception is no longer necessary if the basic reasons for it no longer apply.
And they would if one switched to a different model: If the inheritance tax determined is not actually collected, but converted into (temporary) state co-ownership, the disadvantages mentioned can be prevented. In this model, the state would set the inheritance tax – which would then no longer be reduced – on business estates in such a way that it would be implemented in the form of a passive “silent” partnership expressed as a percentage. This means that the state would then be co-owner of the company transferred to the heirs without any entrepreneurial say.
This would initially lead to the accusation that the inheritance tax would take too much liquidity out of the business and that entrepreneurial freedom would be restricted, and that the ground would be withdrawn. The state, as co-owner, would not interfere in the business, but its participation entitles it to regularly collect a share of the profit corresponding to its share of the property. The descendants of the (family) entrepreneurs could get rid of this “partnership”, which is certainly perceived as extremely unpopular, by triggering the unwanted temporary co-owner as quickly as possible, i.e. buying back the state share.
A very desirable side effect of such an incentive system is that the increase in profits with the aim of quickly paying off the treasury and thus getting rid of it creates jobs rather than eliminating them. Or to put it another way: The economic success stimulated by extrinsic motivation secures jobs and generates additional income for the state that promotes economic performance, which is generated by the company heirs at a self-determined pace and at the desired level.
The state could invest these additional funds in residential construction with social and sustainability requirements in mind.
Further socially and ecologically effective effects would be achieved in such a model via the aforementioned discount incentives: For example, investments in permanent sustainable social housing or projects in biodiversity-preserving projects could be offset. The company heirs could also be rewarded with a strong reduction in the state’s shares if they are willing to take the politically prescribed steps towards climate neutrality and sustainable economic activity on their own initiative and demonstrably much faster than the law already stipulates. One must not underestimate how efficient entrepreneurs can become if this results in opportunities for them to profit in the form of lower taxes – in the spirit of a liberal and regulatory policy idea.
The concern of the Liberals that such a model amounts to a hidden tax hike is not justified, by the way. As long as the heir leaves the silent participation, he does not even have to pay any inheritance tax. And if he redeems them using the “socio-ecological discount procedure”, then a statutory regulation can leave the tax rate at the level that already applies today. Only those who simply want to replace the state’s share at a self-chosen pace without any quid pro quo will it actually become more expensive. But these additional inheritance tax revenues could also be invested by the state in low-rent and sustainable housing construction for a specific purpose.
The FDP should also be able to agree on such a compromise in coalition negotiations – on the grounds that a tax increase can be avoided by the entrepreneurs themselves. Even if such an approach, which is intended to exemplify social, ecological and performance or market-oriented solutions, should be examined more closely with regard to undesirable side effects and practicability, with such very concrete and illustrative examples, a resolution of the tax policy traffic light Dilemmas to be possible.