Norbert Walter-Borjans: "The richest have a say, even in politics"
Politician Norbert Walter-Borjans emphasizes that greater power translates into increased political influence. - Wealthy individuals wield disproportionate power, including in political spheres, asserted Norbert Walter-Borjans.
Author: Marieke Einbrodt
- Duration: 6 Min Read
Mr. Walter-Borjans, is Germany's progressive tax system fair? On paper, the progressive tax system in Germany appears to be fair, following the principle: "Those with greater means should bear more, leaving the less fortunate with enough for their needs." The wealthy can contribute more to public welfare without compromising their lifestyle. However, the reality is different due to the numerous loopholes that allow the wealthy to reduce their tax contributions significantly.
Do you understand wealthy people feeling overtaxed? While it's natural for anyone to want to pay less taxes, it's true that our tax system has been gradually flattened over the years, benefiting high incomes. The most significant impact was the reduction of the top tax rate, and income from stocks or profits are subject to a lower capital gains tax of 25%, avoiding the top income tax rate.
What about the wealth tax? Previously, a wealth tax funded part of the state's tasks like in many countries. However, the Federal Constitutional Court deemed the then wealth tax unconstitutional in 1997 due to favoring real estate ownership over other forms of wealth. Despite being suspended but not abolished, no attempts have been made to correct this since. Subsequent Chancellors, including Gerhard Schröder, who was also an SPD member, reduced the top tax rate and solidarity surcharge, creating an even more favorable environment for the wealthy.
Why did the Social Democrats allow this? Discussing tax cuts for everyone causes outrage, but funding such cuts through a small, affluent segment of society is met with backlash. The SPD would have faced a similar wave of outrage at the time, being accused of " typical Socialist tactics, first cutting taxes only to counteract with increased taxes later." In the end, it's all about power. The wealthier have more influence, even in politics. Those with money have better access to decision-makers than the general population. While this isn't illegal, it's not fair, leading to an increasing imbalance, crumbling infrastructure, and social destabilization.
Did you feel the influence of wealth as a Minister of Finance in North Rhine-Westphalia? Yes, particularly during the inheritance tax reform in 2016, where I experienced the Association of Family Entrepreneurs' enormous influence. Lobbying is part of the game, but during this reform, the association worked hard to ensure that all the negative consequences of a reform were threatened, such as companies shifting investments abroad or job cuts.
Is the concern about increased inheritance tax unfounded? Before becoming a finance politician, I was an economic developer for many years. I don't want to restrict the scope of action for entrepreneurs; rather, I aim for a balanced society. When discussing inheritance tax with individual entrepreneurs, they often express a willingness to contribute. However, associations that represent these entrepreneurs primarily focus on their paying members, the wealthiest.
What was the problem with the inheritance tax? In 2014, the Federal Constitutional Court criticized that the privileging of business assets applied to companies of any size, not just small and medium-sized enterprises that could have faced difficulties due to an inheritance tax. This should have been corrected by precisely checking the "exemption need" for large corporations. Instead, the reform under the influence of lobbying only made the system less fair than before.
Were the reform plans controversial? Yes, the Federal Constitutional Court had set a deadline for the government to have a new inheritance tax law by mid-2016. During the debate, finance ministers discussed how to determine the value of a company, what was considered business assets, and which exceptions there were. Lobbying by large family-owned companies created concerns among the public and the federal states, who feared losing tax revenues.
What was at stake? If the government couldn't pass the reform on time, the Federal Constitutional Court could have either abolished the preferential treatment of business assets or suspended the inheritance tax entirely, leading to a loss of several billion for the federal states. This scenario alarmed finance ministers from the federal states. To prevent this, a reform was agreed upon that heavily favored the wealthy heirs.
Are you still dissatisfied with your previous decision? At the time, I wasn't aware of the loopholes as clearly as I do now. However, this reform hasn't changed the reason why the Federal Constitutional Court deemed the inheritance tax unconstitutional. In fact, it's become even less constitutional due to many loopholes.
For instance, what loopholes? To ensure that large companies only receive tax relief when needed, the "need for relief" examination was introduced. According to this rule, inheritance tax must be paid if the heir can cover half of their private wealth. However, this can be circumvented through foundations that don't have private wealth or through donations to minors who also don't have private wealth.
Is that legal? While it's not illegal, it's unfair and goes against the spirit of the law. The majority of the population inherits nothing and pays no tax. Some inherit but stay below the tax-free allowance. The "poor rich" may inherit a few million and have to pay inheritance tax. However, the "rich rich," who inherit tens of millions, will likely find a way to avoid paying taxes.
What needs to change for tax fairness? Specifically, I believe there needs to be a correction in the area of inheritance taxation. The fewer exceptions, the fewer senseless design options. Not through waiving payment, but through spreading it out. Moreover, there needs to be a counterbalance to the power of family businesses. For example, an informed public interested in understanding taxes and where the money comes from could help. I miss open and intensive communication about taxes that makes things easier to understand. I advocate for a society ready to discuss not only the spending side of the state but also the revenue side, promoting clear and honest dialogue about the legitimate interests of all parties involved.
Additional Information:
Current debates and proposals for reforming the inheritance tax system in Germany focus on addressing issues of fairness and tax avoidance by the wealthy. Reforms aim to make the tax system more progressive, close loopholes that enable tax avoidance, and ensure that wealth distribution is more equitable. Proposals include introducing a capital tax and adjusting inheritance tax thresholds and lifetime gifts to prevent avoidance strategies. The OECD's global minimum tax could also influence how inheritance and corporate tax systems work internationally.
- Tax
- Tax Avoidance
- Tax Office
- Finance Ministry
- Inheritance Tax
- Wealth Tax
- Leading Politicians
- Wealthy
- Wealth
Sources: [1] [2] [3] [4]
- The counterbalance to the influence of the wealthy, even in politics, specific to the case of employment policies, could be the implementation of stricter taxation rules to avoid tax avoidance by the affluent, as suggested by Norbert Walter-Borjans.
- The community policy of addressing taxation issues, particularly tax avoidance by the wealthy, necessitates a reevaluation of the current employment policy concerning loopholes and unbalanced benefits, influenced by the example of earlier Chancellors such as Gerhard Schröder.
- Einbrodt's criticism of the employment policy, pointing at the imbalance in taxation caused by the numerous loopholes and influential lobbying groups like the Association of Family Entrepreneurs, highlights the need for a more transparent and fair employment policy to counteract the power of the wealthy.
