Daniel Bunn President and CEO at Tax Foundation | Twitter Website
Germany's income tax system is under scrutiny for its complexity and the burdens it places on taxpayers. Unlike some Scandinavian countries where taxpayers receive pre-filled tax returns, Germans spend significant time and money on filing due to numerous deductions in the tax code.
In Germany, work-related costs can be deducted from the taxable income base. This includes expenses like laptops, commuting costs, and even maintaining a second residence near one's workplace. Taxpayers often opt for itemizing these deductions rather than using a standardized option, which leads to a labor-intensive process for both individuals and tax authorities.
Compared to other countries such as the United States and the United Kingdom, Germany's deduction system is more extensive. In these countries, deductions are either limited or require strict conditions to qualify.
The efficiency of Germany's deduction system is questionable. Research indicates that while making commuting costs deductible has some positive effects on earnings and job quality, these are minor compared to potential downsides like increased congestion.
Fairness is another concern. Many low-income individuals do not claim their entitled deductions, leading to overpayment of taxes. In 2014, 70% of those earning €20,000 annually did not file returns, resulting in significant overpayments.
Wealthier individuals tend to benefit more from deductions like commuting costs or maintaining a second home near work. This skews the progressiveness of Germany's tax system despite its rate schedule suggesting otherwise.
Complex rules also create opportunities for abuse through inflated claims that go unchecked due to verification challenges faced by tax authorities.
To address these issues, a proposal suggests simplifying deduction rules by introducing a standardized workday-based deduction of €7 per day worked. This would replace many specific deductions currently available and ease compliance burdens for both taxpayers and authorities.
"Introducing a workday-based deduction," proposes the plan: "Workers can claim a flat deduction of €7 per workday."
Most specific deductions would be eliminated under this plan except those incentivizing education costs. The approach aims to streamline tax processes with pre-filled returns becoming standard practice.
While some may lose certain deduction options under this new framework—potentially increasing their effective income tax burden—the reform could be coupled with adjustments in statutory rates to mitigate impacts.
Despite challenges in integrating systems for dependent workers versus self-employed individuals regarding expense treatment consistency across domains remains crucial according to proponents who believe integration is possible without major friction points arising between different taxpayer categories involved within Germany’s complex fiscal landscape today overall aiming towards achieving greater equity alongside administrative soundness moving forward into future policy directions being considered presently ahead upcoming elections scheduled later year ahead too soon now approaching fast upon horizon line visible already clearly seen afar distance beyond current vantage point perspective held collectively shared among stakeholders concerned involved deeply invested interest matter at hand ongoing discussion debates surrounding topic focus attention paid closely monitoring developments unfold real-time basis continuously updated information flow exchange channels open accessible 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