All are for justice. But when it comes to the question of what is meant by justice, opinions differ. Should it be about fairness of performance – if you do more, you get more? Or about equal opportunities, a question that often plays a role in the education sector? Or should it be about distributive justice – that is, about the attempt to ensure an appropriate distribution of goods?
Ultimately, these questions also play a role when looking at Finance Minister Lindner's (FDP) current tax plans. Anyone who attaches great importance to the fairness of performance is likely to come to different conclusions than those who primarily look at questions of distribution.
Justice in the tax system
The German system of wage and income tax provides that those who earn more not only – as would be the case with a purely linear tax rate – pay proportionally higher taxes. On the contrary, the higher the income, the higher the tax rate – there is then talk of a progressive tax rate.
If you earn five percent more, you don't pay five percent more taxes, but more. That may be manageable in normal times, after all you have more in your pocket. But things are different in times of inflation: Purchasing power can fall despite rising wages, you have more in your pocket but can afford less. Only the state benefits from inflation through higher tax revenues – keyword: "cold progression".
Adjust taxes for inflation
Because of this system, the state has to adapt the tax rate to the inflation trend if it does not want to burden its citizens excessively. For several years, the Federal Ministry of Finance has regularly presented a so-called "progression report".
As a result, similar corrections were made to the tax system, as suggested by Lindner. For example, the basic allowance and the child allowance have been increased regularly and the basic tariff values have been shifted upwards – which means that a certain tax rate is only due if the income is higher than before.
The omission of such measures would be unfair in the sense that the state would otherwise carry out secret tax increases – without being discussed, let alone voted on.
Fair in the current tax system
In that sense, Lindner is right: his plans are consistent within the existing tax system – and to that extent fair. This also applies if you look at the distribution effects: in absolute terms, those who earn the most benefit the most. But it's the one that would otherwise be most affected by the "cold progression".
In relative terms – i.e. compared to their own income – even low earners benefit more from the corrections in tax law. A single person with an income of 20,000 euros should pay a good five percent less, a single person with an income of 100,000 euros by 1.5 percent.
Poor households suffer the most
But of course another view of the tax plans is also conceivable. Based on the sum of ten billion euros that the federal, state and local governments have to forego, according to Lindner's assessment, the question can be asked: What would the most equitable distribution look like if these ten billion euros were available on the expenditure side?
The fact is that poorer households are currently suffering the most from the price increases. The share of expenses for electricity and heat is significantly higher for them than for richer households.
Accordingly, state support should focus more on poorer households, the SPD, the Greens, the left and welfare organizations are demanding. Fair – in this line of argument that would mean that those who need more help get more money from the state. For example through direct grants. Many economists are also in favor of this.
Values – no objectivity
The problem is: fairness in the tax system and fairness in distribution issues cannot be determined objectively. Rather, they are value judgments. Anyone who wants to forgo the corrections in the tax scale in favor of direct grants to the particularly needy should honestly admit that this would represent an indirect tax increase.
On the other hand, anyone who insists on the – internally consistent – measures to combat cold progression must also honestly admit that the funds for direct grants are limited.
Note: An earlier version of the article stated that an increase in the basic allowance would have a different effect depending on the level of income. This is not the case: an increase in the basic allowance has the same effect on all taxpayers. We ask to apologize the mistake.