German Finance Minister Lars Klingbeil has put forward two distinct income tax reform proposals to negotiators within the governing coalition, offering different scales of tax relief while proposing to raise taxes on high-income households as part of the funding mix.
One plan would deliver what the finance ministry describes as a moderate package of tax relief valued at approximately €10 billion. An alternative package is larger, amounting to around €20 billion in tax relief. Both options were presented to coalition partners as part of ongoing internal negotiations.
To help pay for the proposed relief measures, Klingbeil is considering adjustments to Germany’s top marginal tax arrangements. The so-called "rich tax" currently sits at 45% and is applied to single taxpayers with taxable annual income of roughly €280,000 or more. The proposals contemplate raising that rate, thereby increasing the tax contribution required from the highest earners.
In addition, both proposals would alter the income threshold that triggers the 42% top tax rate. Today, that 42% rate applies to taxable income of about €70,000. Raising the threshold for the 42% band appears intended to secure the backing of more conservative coalition partners by offering broader tax relief to some higher-income taxpayers while shifting revenue collection toward the very top of the income distribution.
The larger €20 billion package includes further revenue measures beyond adjustments to marginal rates. Among these is a proposal to increase inheritance tax, together with other unspecified measures. The timing of the inheritance tax proposal is notable in light of an expected ruling by Germany’s constitutional court, which could bear on how inheritance taxation is structured or implemented.
A spokesperson for the finance ministry said coalition discussions were "continuing confidentially" and declined to comment on the proposals' details. That response underlines the tentative nature of the plans and the political negotiations still underway.
At this stage, the two-package approach frames the trade-offs being discussed within the coalition: varying degrees of upfront tax relief to taxpayers in return for higher levies on very high incomes and, in the larger proposal, additional measures such as changes to inheritance tax. How those trade-offs resolve will depend on confidential coalition negotiations and the reception of the proposals by partner parties.