19
II Structure and development of the German tax system
How can the German tax system be characterized? As a background for our analyses
of tax reforms, we shortly review the structure and the development of the German
tax system. We start with the current tax system and then discuss the development
before and after 1950. Finally we examine the relationship in between social security contributions and taxes and justify our decision to abstract from social security
contributions in our analysis.
1 The German tax system – overview
Wage and Income
Tax
39%
VAT
28%
Other
6%
Property Taxes
4%
Tobacco Taxes
3%
Mineral Oil Taxes
8%
Business Taxes
12%
Revenues/
Total Tax Revenues
(2006)
Data source: Federal Statistical Office (2007).
TAX REVENUES AND TAX MIX
Germany 2006
Figure 1: Tax revenues and tax mix – Germany 2006
20
The German tax system consists of 39 different taxes.1 However, most of these taxes
are only of minor importance as the nine most important taxes accounted for 94% of
all tax revenues in 2006 (see Figure 1).
Measured in revenues terms, the wage and income tax and the value-added tax
(VAT) are the most important taxes in Germany. They accounted together for ?rds of
total tax revenues in 2006. Business taxes – in form of the corporate profit tax and
the local trade tax (which is levied by the municipalities at individual rates on businesses) – amounted to another 12% of tax revenues. The most important excises are
on mineral oil (8% of total revenues) and tobacco (3% of total tax revenues). Property taxes – in form of the real estate tax, the real estate acquisition tax, and the gift
and inheritance tax – amounted to 4% of total revenue. The 30 other taxes – mostly
small excises – yielded together only 6% of total revenues in 2006.
TAX
Wage and
income tax
Value-added
tax (VAT)
Corporate
profit tax
Local trade
tax
Mineral oil
taxes
Tobacco
taxes
Real estate
tax
Gift and
inheritance
tax
Real estate
acquisition
tax
Tax Base
Synthetic income tax
(income from 7 sources)
Net value-added at every
stage of production
Profits of incorporated
businesses on the basis of
historical costs
Business profits plus additions
and reductions
Motor fuel, furnace fuel and
natural gas
Sales of cigarettes, tobacco
and cigars
Tax Rates
Progressive rate schedule
(from 15% to 45%)
Normal rate: 19%; reduced rate: 7%
(since 2007)
25% for retained and distributed profits
5% base rate and local multipliers
(on average 389% in 2005)
€0.6698/l for unleaded fuel
€0.4857/kg for Diesel
Rates depending on volume and price (e.g.
0.0827/cigarette plus 25.29% of the final
price)
Peculiarities
Additional 5.5% solidarity surcharge
on tax payment
Banking, sales of land and
buildings, hospital and medical
services are VAT exempt
Additional 5,5% solidarity surcharge
on the tax payment
Tax payment is deductable from its
own tax base and the tax base of
income/corporate taxes
Standard value of real estate;
(tax A on farming and forestry;
B for all others)
Rates from 2.6‰ to 3.6 ‰ in Western
Germany and local multipliers (for real
estate tax A: 292%; B: 392%)
Deductible as a business expense
when calculating taxable business
income
Value of real estate (earningcapacity method);
book value of other assets
Rates varying from 7% to 50% depending
on the relationship in between donor and
donee
High exemption level for spouses
and for children; special regulations
for passing on businesses
Sale price of real estate 3.5%
CURRENT TAX REGULATION (2007)
Table 1: Tax rates and tax bases of main taxes (2007)
In Table 1 we give an overview of the most important current regulations in taxation. We discuss regulation and reform of the main German taxes in detail in chapter
IV.2.
1 If we count only those taxes that are important enough in revenue terms to be displayed
separately in the tax revenue statistics of the Federal Statistical Office.
21
2 Historical roots of the German tax system
While important parts of the current tax system date back to the 19th century,2 the
foundation of the current system was formed mainly after 1913. Three developments
were especially important.3
30,4
19,4
4,1
8
16,3
16,2 11,5
13,2
22,3
10,2
20,2 19,3
23,3
0
7,6
24,1
15,8
8,1 3,5
22,4
4,1
1913 1929 1950
Custom duties
Sales tax
Consumption
taxes
Property
taxes
Trade and
real estate
taxes
Corporate
taxes
Wage and
income tax
TAX REVENUES AND TAX MIX
Germany 1913-1950
TAX REVENUES/GDP REVENUE SHARES in %
21,9%
19,7%20,1%
17,0%
15,1%
7,7%
0%
5%
10%
15%
20%
25%
1913 1925 1929 1932 1936 1950
Data source: Hentschel (1983), pp. 273 ff.
Tax Revenues/
GDP
Figure 2: Development of the tax/GDP ratio and the tax mix 1913-1950
First, the tax revenue over GDP ratio – as an indicator of the general tax burden –
almost tripled from 1913 to 1932 (see the left part of Figure 2). Tax revenues accounted for 20.1% of GDP already in 1932 which is close to the average level of
23% since 1950.
The second important development was the introduction of a general sales tax4
which became the most important tax in revenue terms and accounted for more than
2 For example, the Miquel reform of 1891/93 introduced a general income tax in Prussia. See
Kassner (2001).
3 Although tax revenue data from before 1950 is strongly distorted by two world wars (1914 to
1918 and 1939 to 1945), we can nonetheless identify important developments. For a more detailed discussion of the development of the German tax system in this period see Hentschel
(1983), pp. 273 ff.
4 Transformed into a value-added tax in 1968.
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References
Zusammenfassung
Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.
Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.