Good news for employees: The government has so far completely offset the so-called “cold progression” in income tax for almost all households. This is reported the “Welt am Sonntag” citing calculations by the German Economic Institute (IW).
A “cold progression” describes the effect that occurs when annual wage increases lead to an additional tax burden.
With the measures proposed by Federal Finance Minister Christian Lindner (FDP) planned tax cuts for 2025 A complete compensation of the “cold progression” will be achieved over the entire four-year legislative period, the study states.
If the SPD and the Greens do not want to reduce the bracket creep for upper income earners, they are in fact in favor of tax increases.
Pure wooden nailPresident of the Taxpayers’ Association
“The elimination of the secret tax increases as part of bracket creep is to be welcomed because it at least keeps the tax burden constant,” IW tax expert Martin Beznoska told the newspaper. However, the Bundestag and Bundesrat still have to approve the FDP leader’s draft bill.
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The President of the Taxpayers’ Association, Reiner Holznagel, warned against denying high earners the planned compensation for the “cold progression”. “If the SPD and the Greens do not want to reduce the cold progression for upper income earners, they are in fact in favor of tax increases,” said Holznagel, adding: “Then they should tell the voters that openly.”
According to another study published on Tuesday, high earners will benefit particularly strongly from Lindner’s current tax cut plans.
Singles earning a gross monthly salary of 7,500 euros or more would receive a tax relief of 500 euros if the government plans are implemented in 2025, according to the analysis by the Bremen Chamber of Employees, which the “Süddeutsche Zeitung” reported. Three to five times as much as average earners. The situation is similar for high-earning families with two children.
According to the report, those earning a good 8,000 euros a month will receive a reduction of 400 euros per year, and those earning higher amounts will receive a few hundred euros more. On the other hand, average earners earning 2,000 to 5,000 euros will only receive a good 100 to a maximum of 300 euros.
According to the report, the Chamber of Employees based its calculations on the Tax Development Act, with which the Finance Minister intends, among other things, to raise the basic income tax rates and the exemption limit for the solidarity contribution in order to compensate for the “cold progression”.
The study criticizes the approach because average earners with children are far more affected by the high inflation than wealthier people. According to a study by the Institute for Macroeconomics, couples with two children or single parents with one child and a net monthly income of just under 3,000 euros will have 260 or 320 euros less income available in 2024 after inflation than in 2021 before the wave of inflation.
For well-earning singles and couples with two children, however, the bracket creep including social security contributions is overcompensated, so that they ultimately have even more purchasing power, it said. (lem)
