GBefore the election campaign is about tax policy, the question of redistribution in the name of social justice is usually in the foreground. Researchers at the Ifo Institute have now examined the consequences of various tax reforms from a completely different perspective.
Depending on whether the tax burden for companies falls, the top tax rate rises or the sales tax is raised, there are far-reaching consequences for wages, employment, investments and overall economic development.
The core message of the study, entitled “How do tax reliefs affect economic development and tax revenue?”, Some redistribution supporters will not be happy to hear: It is precisely the tax breaks for companies that are not only particularly growth-promoting, but also have the strongest positive effects on wages and employment .
In the long term, tax revenues would also return to their original level. “There are tax shortfalls for a transitional period. But they can be seen as investments by the state in order to enable higher wages, more employment and a higher level of consumption in the future, ”says Ifo President Clemens Fuest, who carried out the quantitative analysis together with colleagues.
In an international comparison, companies in Germany are subject to a high tax burden of around 30 percent (corporation tax plus trade tax). Among the large industrialized countries, only Japan is just above it.
In the election manifesto of the FDP, a reduction to 25 percent is promised. According to Ifo calculations, a reduction in the corporate tax rate from 15 percent to ten percent in the first year would result in a drop in income of almost 14 billion euros, which, however, will halve over time, according to Ifo calculations.
While the SPD, Greens, AfD and Left are not planning a change in corporate taxation, the Union at least considers such a step to be necessary “in perspective”.
As a second measure, the Ifo researchers analyzed the effects of targeted investment incentives. Specifically, it is about shortening the period of tax depreciation for investments from ten to four years. Union and FDP will not be as specific, but like the Greens they want to support the economy through more generous depreciation rules.
In the case of the SPD, the Left or the AfD, there is nothing to do with this in the election manifestos. The significant improvement in depreciation proposed by the Ifo Institute will cost the tax authorities dearly in the short term. But the tax losses of 17 billion euros expected in the first year are quickly reversed into additional income of 8.5 billion euros.
“The acceleration of tax depreciation means, given the level of investment, only a shift in tax payments over time,” says the study. In the end, only the growth-enhancing effects of such relief will have an impact. These are even greater than for the reduced corporate income tax, as all companies benefit regardless of their legal form.
A combination of the two reforms would reduce tax revenue by 30 billion euros in the short term. After an adjustment period, however, the economic output and consumption of private households would be a whopping three percent higher than without the reform. Employment would rise by 1.4 percent and wages by around four percent.
A higher top tax rate does not help
The effects would be completely different if the state tried to generate additional income by raising the top tax rate or by increasing sales tax. The approach of the advocates of greater redistribution via income tax comes off particularly badly in the analysis of the financial experts.
If tax increases were the goal of politics, a higher sales tax would have less of an impact on employment and growth than an increase in the top tax rate, the scientists warn. If the income tax rate were to be increased by three percentage points from an income of 100,000 euros, the state would generate 4.9 billion euros in additional tax revenue in the first year.
In the long term, however, the additional tax revenue will drop to 3.4 billion euros. The tax reform would put a damper on growth: economic output would fall by 0.4 percent.
The Greens are planning such a tax hike. The left want to ask taxpayers to pay more than an income of 65,000 euros and to raise the top tax rate even more. According to the study, what the left-wing parties consider a measure for more distributive justice actually has extremely undesirable social side effects, especially since partnerships would also be affected as taxpayers.
A higher top tax rate leads to less employment, a lower wage bill, significantly reduced private consumption and growth losses of 0.4 percent.
For economists, therefore, an increase in sales tax by one percentage point would be the lesser evil. This would increase tax revenues by 7.4 to 7.8 billion euros, twice as much as the increase in the top tax rate, but reduce gross domestic product by only 0.2 percent.
The Ifo calculations make it clear why tax policy should always take into account the long-term economic consequences and not just the short-term distributive effect.
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