Dhe solidarity surcharge is surprisingly long-lasting. After the decision of the Federal Fiscal Court (BFH), which coolly dismissed the lawsuit of a taxpayer couple who felt drained, its supporters have the upper hand. A small dispute between the Finance Minister of Baden-Württemberg and the President of the Ifo Institute in Munich shows just how much. More on that later. It’s clear that the highest tax court didn’t dare to get in the way of politicians after almost thirty years of “solidarity”. It could even give you new scope for spending without risking the big trouble that is usually associated with a tax increase – if the Federal Constitutional Court does not intervene after all.
The highest judges are definitely in demand. Leading FDP politicians filed a constitutional complaint against the Solidarity Surcharge Act in August 2020, including Christian Dürr, who is now chairman of the FDP parliamentary group, and Florian Toncar and Katja Hessel, both Parliamentary State Secretaries in the Federal Ministry of Finance since December 2021. But the plaintiffs who lost at the BFH have also shown their determination to bring their case before the highest German court. So the Soli thing has not yet been finally legally decided.
Lindner’s painful defeat
So far, Olaf Scholz has had every reason to grin “smurfishly” (as CSU boss Markus Söder once said). Before the SPD politician became chancellor, he had dared, as finance minister, against the advice of many, to leave the burden of the supplementary tax to higher earners alone. 90 percent of income taxpayers were relieved by the black-red coalition. Since the beginning of 2021, only about 3.5 percent have been paying the full rate of 5.5 percent (based on their income tax). Another 6.5 percent of the old payers benefit at least somewhat from the new regulation.
Until the Scholz reform, all taxpayers, except for the lowest earners, had to show solidarity, each according to their tax burden: those who earned a lot paid a lot, those who earned little received a correspondingly small burden. This resulted in a whole new soli: those who pay a lot of taxes continue to pay a high surcharge, those who pay fewer taxes are exempted from the extra burden. For the BFH judges, this soli squared falls within the legislature’s freedom of design. “In the case of taxes that, like income tax, are geared towards the ability of the taxpayer to pay, it is permissible and necessary to take social aspects into account,” they judged. “Therefore, the legislature can also take such considerations into account in the supplementary tax, which represents an increase in income tax in the economic result.”
For Christian Lindner (FDP), who succeeded Scholz in the Ministry of Finance, the BFH judgment was and is a painful defeat. The Liberal politician had instructed his officials not to defend the solos at the hearing. In the proceedings pending before the Federal Constitutional Court, the Ministry of Finance plays a Janus-faced role: As the financial administration, it has to represent the collection of solidarity surcharges, while at the same time a significant part of its management considers the collection to be no longer compatible with the Basic Law. Lindner himself is not one of the FDP complainants in Karlsruhe. But he is “politically” of the opinion that the solos should be omitted. That would be “the fastest way to strengthen the economic competitiveness of our companies,” he said on the day of the BFH decision.
Political demand for redistribution
While the FDP has long wanted to shed the additional burden, the SPD and the Greens are committed advocates of solidarity. The topic was therefore left out of the coalition agreement – both camps had to rely on the legal battle ending in their favor. “The FDP should finally give up its resistance to the solos. The economists of the Advisory Council also say that a soli for top earners is justified in view of billions in debt,” said Baden-Württemberg’s Finance Minister Danyal Bayaz (Greens) after the verdict. “It’s about evidence-based politics, not about lobbying for high incomes.” The judgment of the Federal Fiscal Court is also a warning shot for politics as a whole: “We can’t always rely on the courts to solve the conflicts that we don’t deal with politically able to communicate.”