THE WORLD FROM BERLIN

SPD Tax Proposals 'Border on Economic Insanity'

04/17/2009 03:47 PM

The Social Democrats' leaked tax reform proposals, including a pledge to give a €300 bonus to people who don't claim tax rebates by filing returns, has unleashed a torrent of criticism in Germany. The program would cost billions in a country that is already having to borrow heavily as a result of the financial crisis, critics say.

Germany's Social Democratic Party (SPD) will be meeting this weekend to hammer out and announce its program for September's federal elections, but details of a possible draft of the program that were leaked on Thursday have politicians and the press heatedly debating the party's possible proposals for amending Germany's tax regime.

AP

The SPD is hoping to reduce paperwork for tax payers and authorities. Many doubt its suggestions for doing so will work.

The list of possible measures includes reducing the lowest income tax rate to 10 percent from 14 percent, raising the highest tax rate to 47 percent from 45 percent, lowering the threshold for being subject to the highest tax rate from €250,000 to €125,000 and introducing a stock exchange tax on trades valued above €1,000.

The potential measure that elicited the most and the loudest responses, though, was one that envisions giving a €300 ($392) tax rebate to people who have no other source of income than their salaries in return for their not filing a tax return. The theory behind the lump-sum bonus payment would be that taxpayers would be able to avoid standard tax complications, such as submitting receipts for deductions, and that the tax authorities would have a much reduced burden.

Many view these proposals as part of the party's efforts to steer more to the left in a move to keep voters from abandoning it for other parties, and particularly the Left Party, as well as to win over voters worried about how the global economic downturn is hurting Germany.

Details of the party's platform were released in an article in the Süddeutsche Zeitung Thursday and precipitated immediate criticism. Otto Bernhardt, for example, the parliamentary finance policy spokesman for Chancellor Angela Merkel's Christian Democratic Union (CDU) party, called the SPD's plans "crude election campaign pledges." And Hans Michelbach, the chairman of the association of small and medium businesses for the CDU's Bavarian sister party, the Christian Social Union (CSU), called the plan for the €300 bonus "the worst form of rip off," claiming that in many cases taxpayers could be giving up €500 in returns from the tax office in exchange for a bonus of only €300.

Politicians from other parties also joined in the chorus of criticism, as have representatives of associations for both tax preparers and payers. At the same time, though, the ideas seem to have found welcome ears among voters. According to a survey by pollster Infratest Dimap released Friday, for example, 59 percent of respondents at least approved of the SPD's proposal for raising the top tax rate.

Criticism of the SPD's plans were splashed across the editorial pages of almost all of Germany's major newspapers on Friday. And, though the reasons given varied, it was still hard to find a kind word.

The center-right Frankfurter Allgemeine Zeitung writes:

"The SPD is proving to be just as demanding to the 'rich' as it is generous to its clientele. In addition to planning to introduce a tax on stock market trading, it also wants to reduce the threshold for top earners and tax them at a higher rate. Even if you leave out church taxes, that would mean that, with the solidarity tax (which helps to pay for the creation of infrastructure in eastern Germany, among other things), this group would be paying about half its income in taxes. The SPD is trying to sell these proposals as part of a plan to reduce the tax bureaucracy. But it doesn't intend to clean up tax laws at all. It's easier, after all, just to promise a bonus to tax groups."

The center-left Süddeutsche Zeitung writes:

"Party election platforms are a bit like goody bags that get filled up with all sorts of sweets, most of which are sticky. Once the election is over, the goody bags are collected and the sweets are tossed in the garbage because no one wants to pay for them. You look in the coffers, but the money isn't there."

"And that's exactly what's going to happen with this proposal for a €300 tax rebate. Since they're already having to spend billions to save the banks as well as more billions to battle the recession, the parties will not be able to pay for all the pretty tax promises they will be making over the next few months."

Conservative Die Welt writes:

"The Social Democrats are promising more than they can deliver with these absurd regulatory suggestions, which would cause huge damage if they were ever implemented. The same holds true for the SPD's most recent coup, which says that taxpayers who choose not to file a tax return will get €300. That would be a law tailored to casual workers, including people receiving Hartz IV benefits for the longterm unemployed, who already now are not required to fill out complicated tax forms every year. It won't be long before they start flooding tax offices with (notifications that they will participate in the program) and celebrate their €300."

DER SPIEGEL

Graphic. Waning economic competence.

"On the other hand, the bonus will not help the majority of people. The SPD's strategy is clear: give to the bottom and take from the top -- financial calculations be damned. … But (the SPD) is obviously hiding the fact that this kind of tax set-up will primarily affect craftsmen and small-business owners, who are forced to declare their profits as income. Putting a heavier tax burden on the many companies who, at this point in time, really need to strengthen their capital positions borders on economic insanity."

"You can only hope that voters will see through the SPD's unimaginative response to increasing rates of people opposed to Germany's liberal market economy. If not, we will all have to pay the piper -- and the price will come in the form of higher taxes, more bureaucracy and less growth."

Left-leaning Die Tageszeitung writes:

"Voters will not let themselves be sold for dumb. The coalition between former Chancellor Gerhard Schröder and the Greens pampered high earners by lowering the top tax rate in a historically unique way from 53 percent to 42 percent. Now, when the Social Democrats all of a sudden want to increase the tax burden of the rich with just a few more measly percentage points, they are not doing anything to fundamentally do away with the ridiculous social policies of the previous government. And even the €300 bonus for employed people who relinquish their right to file a tax return misses one important fact: Low earners don't pay any taxes. As a result, a cashier working at a discount store, a hair stylist and a security guard will never reap any benefit from the €300. It would be much more appropriate to lower social contributions that even these people have to pay, such as those for retirement, health insurance or unemployment insurance. A year ago, the SPD intensively debated and developed suggestions for finding a mechanism that would allow them to counter the CDU's plans for lowering taxes. But it is now becoming apparent that these plans have been silently scrapped."

The Financial Times Deutschland writes:

"It is very doubtful whether a party platform that -- often justifiably -- stokes rage against the elites will be sufficient."

"(SPD party leader Franz) Müntefering, (SPD candidate for chancellor and current Foreign Minister Frank-Walter) Steinmeier and (German Finance Minister Peer) Steinbrück are also allowing the party platform to be altered because they are being forced to fear that the members of the left wing faction of their party will take over power after parliamentary elections. Still, it would be unwise for them to move too far away from the positions of the majority. And if the SPD can succeed in ending up as part of a grand coalition with Merkel's conservatives again, they wouldn't have to pay the bill (since it would never be approved by the conservatives). Steinmeier and Steinbrück would be able to hold on to their ministerial positions. There'd be a lot of grumbling, but they'd still be part of the government."

The business daily Handelsblatt writes:

"The €300 tax rebate would be a very pretty taxation policy if it weren't so absurd. Are we really to believe that the state should reward its citizens by no longer bothering them with complicated tax issues? A real tax policy would do just the opposite by amending the many unsystematic tax issues so as to finally reach the simplification that has been promised so many times. There are much easier and less bureaucratic ways of doing this … but, of course, none of them sounds as pretty as '€300 for Everyone!'."

-- Josh Ward, 3:00 p.m. CEST