Status: 02.11.2022 2:11 p.m
Inflation is rising and with it the tax burden – Federal Finance Minister Lindner wants to prevent that. Among other things, the child allowance and the basic allowance are to be adjusted in order to compensate for the so-called cold progression.
The federal government wants to relieve citizens and companies in income tax by a total of 45.1 billion euros in the next two years. The background is the high inflation. Federal Finance Minister Christian Lindner presented an adjustment of the child allowance, the basic allowance and the key points for the tax rates in order to compensate for the so-called cold progression.
In times of inflation, this can mean that despite wage increases, citizens ultimately have less money at their disposal because they are subject to a higher tax rate. According to Lindner, without countermeasures, the effect would lead to an additional tax burden of 15.8 billion euros in the coming year. In 2024 it would even be 29.3 billion euros.
“Unfair and undemocratic”
Such a “secret tax increase” is “unfair and undemocratic,” said Lindner in Berlin. “The state must not become the winner of inflation.” 48 million working citizens are affected.
To ensure that the “working middle class” does not lose out in times of inflation, tax law must be updated by increasing the basic allowance and the tax rates. With the law, the federal government wants to compensate for the cold progression, a kind of secret tax increase caused by inflation. If an income of actually 43,000 euros only has a purchasing power of 39,000 euros in the coming year due to inflation, the state should not levy as many taxes as if it were still 43,000 euros purchasing power, said Lindner. In order to compensate for this, the federal government wants to turn the screws on the income tax rate.
The basic allowance increases by 561 euros
The basic allowance, i.e. the income up to which no tax has to be paid, is to increase by EUR 561 to EUR 10,908 in the coming year. In 2024 it is to be raised to 11,604 euros.
The top tax rate of 42 percent, which currently applies from a taxable income of 58,597 euros, would only be due in the coming year from 62,827 euros. In 2024, this benchmark would rise to 66,779 euros. The federal government deliberately does not want to touch the limit for the even higher wealth tax rate of 45 percent because it does not believe that additional relief is necessary in this income bracket. If the Bundestag decides on the proposed changes, a family with two children and a household income of 56,000 euros will have to pay 818 euros less in taxes in the coming year, according to Lindner.