Several thousand people took to the streets in Munich last weekend to demonstrate against abortion and assisted suicide. One speaker made a highly dramatic argument against Germany’s alleged “culture of death.” One indication of this, the Speaker discussed, was that the government plans to eliminate the regulation called “spousal tax splitting”.
Is tax law really relevant to the deep philosophical debate over the sanctity of life? Is this also a matter of life and death? Surely we don’t need to go that far? In any case, the intense political uproar over the new debate about ending the spousal tax split is remarkable, even by today’s standards of populist outrage.
An advantage for couples with widely differing incomes
The controversy was started by Germany’s Vice-Chancellor and Finance Minister, Lars Klingbeil of the centre-left Social Democratic Party (SPD), who said he wanted to abolish and replace joint taxation on spouses’ income, a system that has been in place since 1958.
How does spousal tax division actually work? In Germany, married couples (and since 2013, couples in civil partnerships), can choose to have their income assessed jointly by the tax authorities.
This means that the taxable income for both spouses is halved – as if both partners earned an equal half of the income. Their tax liability is then determined by doubling the income tax payable on one half.
Since people who earn more pay more taxes in Germany, this system benefits couples where one partner (and often this is the man) earns significantly more than the other (in practice often the woman).
Cost up to €25 billion per year
For example if one partner earns €60,000 ($70,512) per year and the other partner earns nothing, the couple will be taxed as if they each earned €30,000 per year. In this example, if both partners filed taxes separately, the couple would save approximately €5,800 in taxes per year compared to the amount they would owe. According to the Finance Ministry, spousal tax splitting costs the government a total of €25 billion annually.
Some critics have long seen the apportionment as a tool to keep women out of the labor market, because the more a woman earns, the larger her tax burden becomes. Klingbeil seemed to agree, arguing on ARD television in late March that the system was “out of step with the times”. The system of spousal separation, he said, “reflects an attitude toward women and families that is completely at odds with my own.”
Chancellor Merz said he was in favor of partition
On Monday of this week, Klingbiel received some surprising support on this from Johannes Winkel, the head of the youth wing of the conservative Christian Democratic Union (CDU).
“Given the demographic reality, the government should provide incentives to ensure that both partners in the relationship are employed,” Winkel told Funke Media Group. “In future, tax relief should be given mainly to married couples when they are facing difficulties related to child-rearing.”
But the Chancellor is vocally skeptical of the proposal. “I do not agree with the claim that joint filing for married couples discourages women from working,” Friedrich Merz said at a conference organized by the American Institute for Women’s Health. Frankfurter Allgemeine Zeitung Newspaper. “Marriage is a relationship based on shared income and mutual support. And in marriage, income should be treated as joint income for tax purposes, not separately.”
Klingbeil’s alternative plan
At nearly 74%, the labor force participation rate of women in Germany is the highest in Europe, but half of them work part-time.
Klingbeil’s idea is to replace the existing system with a more flexible approach: both partners will be able to distribute the tax-free income between themselves in such a way that it reduces their tax liability. This will allow the couple to continue to enjoy tax benefits, although not to the same extent as before. And whether one partner earns more than the other will become less important.
However, it remains to be seen whether Klingbeil will be able to go ahead with his proposal. Apart from Germany, similar rules providing tax benefits to couples also exist in Poland, Luxembourg, Portugal and France.
This article was originally written in German.