Status: 16.09.2021 7:41 p.m.
The debate about spouse splitting has been boiling over and over again for years. The criticism: The tax law makes working unattractive for the poorly paid spouse. Ifo President Clemens Fuest is now proposing a reform.
The so-called spouse splitting has been in effect in tax law since 1958. The income of spouse A and spouse B are first added up and then divided by two – i.e. split. The tax is then levied on the income calculated in this way.
The regulation has been controversial for years as it favors the traditional division of roles. Clemens Fuest, President of the Ifo Institute, now recommends a change of course. “From an economic point of view, spouse splitting creates strong incentives for second earners, usually women, not to be gainfully employed or at most to take a part-time job – and instead concentrate on household chores and raising children,” said the head of the economic research institute in Munich.
A shift in the system to models such as real splitting could provide impetus for a higher labor force participation of second earners. In order to limit the burden on marriages, interim solutions are conceivable.
Does splitting promote housewife marriage?
Critics have long complained that children initially do not play a role in the system. For tax purposes, marriage is worth more to the state than children. In addition, splitting promotes housewife marriage. Because the second earner with a lower salary, mostly still women, is practically prevented from working because it does not pay off financially.
Thanks to the progressive tax system, the savings are particularly high when a partner earns significantly more. That means: the bigger the wage differentials, the more advantages. Because the more someone earns, the more tax they have to pay. And so it can be worthwhile to split part of your own income to the partner with lower tax rates.
Real splitting as an alternative
The SPD and the Greens want to abolish spouse splitting, while the Union holds on to it. The image of the family today is more diverse than the traditional division of labor between men and women with the man being the sole breadwinner, Fuest justified his approach. “Equality for women, a fundamental social concern, has a lot to do with employment and economic independence.”
In order to increase female employment, however, tax policy could only be one of several pillars. “A package of measures is required that further expands childcare and greatly improves the compatibility of work and family,” said the economist. His proposal, the so-called real splitting, basically tax the spouses independently of each other. However, the first earner can transfer a certain amount to the second earner for tax purposes. That makes sense because the spouses are mutually obliged to support each other, said Fuest.
According to this, the work incentives for the second earner are not as severely restricted with real splitting as with spouse splitting. The tax burden of the second earner is also positive with real splitting from the first euro, because the transferred income amount is already taxable. That is why the employment effects are positive, but ultimately manageable. The available estimates would speak of around 50,000 additional full-time positions.