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German economists propose new model for marriage tax splitting
🇩🇪 Germany /Economy & Trade

German economists propose new model for marriage tax splitting

From Die Zeit · () German

Translated from German, summarized and contextualized by DistantNews.

At a glance

News Sources not specified New plan
  • Leading German economists propose a reform of the "Ehegattensplitting" tax benefit system.
  • The proposed model aims to redirect tax advantages more towards families with children and strengthen work incentives.
  • The reform would increase taxes for childless couples while providing financial relief to families with children, potentially creating new full-time jobs.

A group of leading German economists has put forward a new concept to reform the "Ehegattensplitting" (income splitting for married couples) system, aiming to inject momentum into a stalled debate. In an open letter to the federal government, they propose a fundamental overhaul of this tax benefit for married couples, seeking to maintain the tax recognition of marriage while directing the benefits more specifically towards families with children and encouraging employment.

"Given demographic change, we must better utilize the earning potential of the many well-educated women in Germany," stated Nicola Fuchs-Schündeln, one of the initiators and president of the Berlin Social Science Center (WZB). She emphasized that to encourage more people to increase their working hours, it must be financially rewarding. The proposal is supported by prominent figures such as Clemens Fuest, head of the ifo Institute, and Marcel Fratzscher, president of the German Institute for Economic Research (DIW).

We must better utilize the earning potential of the many well-educated women in Germany.

— Nicola Fuchs-SchündelnNicola Fuchs-Schündeln, one of the initiators of the reform proposal and president of the Berlin Social Science Center (WZB), explained the rationale behind the proposed changes, linking them to demographic shifts and women's employment.

According to their calculations, the reform would provide an average annual relief of 585 euros for couples with children and 417 euros for single parents. Conversely, childless couples with unequal incomes would face an average increase of 316 euros in their tax burden. The proposal also suggests capping the unlimited tax advantage, limiting the amount a higher earner can deduct for a partner's support to a maximum of 13,805 euros. This change would particularly reduce the benefit for couples with very large income disparities.

The economists propose that the additional state revenue generated by the reform should be fully channeled back to families. This would involve increasing child benefit (Kindergeld) and the child allowance (Kinderfreibetrag) by approximately 22 percent, raising monthly child benefit per child from 259 euros to 316 euros. Their simulations suggest that the stronger work incentive for spouses could lead to the creation of around 49,000 additional full-time positions.

To encourage more people to increase their working hours, it must be financially rewarding.

— Nicola Fuchs-SchündelnFuchs-Schündeln further elaborated on the economic incentives driving the reform, emphasizing the need for financial benefits to encourage increased work hours.
DistantNews Editorial

Originally published by Die Zeit in German. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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