German economists in favor of tax cuts

A large majority of German economists have spoken out in favor of tax cuts for middle-income earners.

This is the conclusion of the April Economists' Panel, jointly conducted by the ifo Institute for Economic Research and the Frankfurter Allgemeine Zeitung, and published Tuesday.

Around 110 economics professors participated in the panel and were surveyed on their assessment of income tax and potential reform options in Germany.

The income tax burden on middle-income earners is considered "too high" by 60 percent of the panel participants. Some 61 percent of participants believe taxes should be lowered for all different tax groups. Only 25 percent of the economics scientists think that there is no need for reform.

One-third of the economists support a tax reduction between 20 and 30 billion euros (21 to 32 billion U.S. dollars) and one quarter of the panel participants support a reduction of 10 to 20 billion euros. "An income tax reform focused on unburdening middle income earners in particular would be a good idea," said Niklas Potrafke, Director of the ifo Center for Public Finance and Political Economy.

Three quarters of the economists surveyed want to introduce a "rolling rate" that is adjusted according to inflation. This would offset the bracket creep whereby taxpayers whose income increases are below the inflation rate gradually move into higher tax groups, without any corresponding increase in their purchasing power. The German economists also call for a reduction in the so-called middle-class bulge, referring to the disproportionate tax burden on middle-income earners.

The tax burden on middle-income earners has increased over the past 12 years, according to an unpublished study conducted by the Cologne Institute for Economic Research, quoted by the Sueddeutsche Zeitung. A single-earner with a gross income of 3,000 euros per month paid 16 percent in tax in 2005 compared to 18 percent today. Those earning 6,000 euros per month currently pay 27 percent in tax. This represents an increase of 3 percent since 2005. The tax burden on singles and married couples has increased significantly although tax rates remained the same, according to the study.

This development can be seen in respect of the maximum tax rate of 42 percent. This rate already applies to those earning less than double the German average income, beyond the initial tax rate. By contrast, in 1965 one had to earn 15 times the average income to fall into this tax bracket. (1 euro=1.09 U.S. dollar) Endit