Inheritance tax increased, higher burden for top earners
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New details have emerged about proposed tax reforms by German Finance Minister Lars Klingbeil, with two possible models now under discussion. The plans could bring major tax relief for millions of low and middle-income earners while increasing the burden on higher earners.
According to reports, the Federal Ministry of Finance (Bundesministerium der Finanzen) has prepared two reform models. Both are designed to reduce income tax for ordinary workers, but they differ in scale and funding. One plan offers €28 billion in tax relief, while the second provides a smaller €17 billion package.
Under the larger reform model, people earning between €40,000 and €60,000 annually could save around €800 to €900 per year in income tax. In the smaller model, taxpayers in the same income bracket would save about €400 to €450 annually. More than 35 million taxpayers could benefit under either proposal.
The first model would partly fund tax cuts through higher taxes on wealth and inheritance. This includes raising inheritance tax (Erbschaftsteuer) and increasing the top income tax rate (Spitzensteuersatz) from 42% to 44% for taxable incomes above €76,508. The wealth tax rate (Reichensteuer) would also start at €200,000, instead of the current €278,000, and rise to 49%.
The second model avoids funding through higher inheritance taxes but still raises the tax burden for wealthy individuals. In this version, the top tax rate would also rise to 44%, applying from €75,657, while the wealth tax rate would begin at €200,000 and reach 48%.
Not everyone would benefit. According to ministry estimates, nearly 1 million taxpayers would pay more under the first model, while around 1.5 million would pay more under the second. These would mainly be top earners affected by the higher tax rates.
The reform is not yet finalized. Coalition negotiations between the SPD (Sozialdemokratische Partei Deutschlands / Social Democratic Party), CDU (Christlich Demokratische Union / Christian Democratic Union), and CSU (Christlich-Soziale Union / Christian Social Union) are still ongoing. While the SPD supports stronger redistribution, the CDU/CSU has so far opposed higher taxes on wealthy citizens, making final agreement uncertain.