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Rich to get tax increases in Germany

by whataboutbob Wed May 3rd, 2006 at 10:14:08 AM EST

From today's FT via this morning's European Breakfast:

High earners hit as German coalition unites on tax reform

Germany's top earners face higher taxes while the country's parents are set to receive extra child benefits following plans agreed yesterday by the grand coalition government of Chancellor Angela Merkel.

In a display of unity ahead of tougher decisions this year on economic reforms, the coalition of centre-right and centre-left parties agreed a 3 percentage point tax rise for those earning more than €250,000 ($415,000, £170,000) a year and a new allowance of up to €1,800 a month for new parents.

The policy moves were both agreed in principle last year, but had since become entangled in inter-party squabbles. The government hopes that the adoption of the measures will help dispel worries that it has failed to act decisively on its reform agenda since taking office in November.

Party leaders yesterday stressed that the coalition was on course to agree details in the next few months of significant health sector reform, and of changes to the way companies are taxed. On both issues, Ms Merkel's Christian Democrats and her allies in the Social Democrats have starkly differing views on what form the changes should take.

"We are now on course to achieve agreement this year on both of these aspects," said Hubertus Heil, SPD general-secretary.

Heaven forbid that certain other countries might take a hint from this action to remedy their growing financial problems, even if it may be perceived as symbolic!

Interesting, I was talking with colleagues this morning, and they say that the super rich in Switzerland get special deals on taxes, because if the country tries to get the same amount from them as the rest of the people, the just threaten to move to another country...and the Swiss govt. backs down, because they need the taxes the do get. So...the super rich can basically blackmail some countries...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Wed May 3rd, 2006 at 10:26:27 AM EST
This is neither heat nor light, but a diversion plain and simple. They obviously wanted to show that yes, CEOs must contribute their share as well (they're the only people affected by the rich tax) before letting this cat out of the bag:

Stricter Checks on Unemployed

Today, the cabinet will consider a draft for the so-called "Continuing Development Law" for the labor-market reform, which is intended to produce close to five billion euros in savings in Hartz IV by early 2010.

The changes, which the Grand Coalition would like to see take effect as of 1 August of this year, provide for much more stringent monitoring of and requirements for recipients of unemployment benefit II.

For example, nation-wide field units will in future check whether people are receiving state aid without entitlement... (SZ, in German)

First they tax (some of) the wealthiest (a little bit more); now they want to save money on the backs of the poorest ("unemployment II" is the basic social welfare support for non-disabled persons). They'll probably make political points on this as well - punishing welfare cheats and all...

I suspect the coalition gambling on accumulating enough political capital to push through a health insurance "reform" sometime later this year.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Wed May 3rd, 2006 at 11:08:32 AM EST
Oh damn!

Link to SZ story.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Wed May 3rd, 2006 at 11:09:30 AM EST
[ Parent ]
Exactly what I was thinking. They'll holler "but we raised the taxes on the rich," while "improving labour flexibility" for the vast masses.

To be fair, tightening of the unemployment benefit payments seems to have worked in Norway, where we have more or less gotten rid of a class of long-term unemployed. (Many of them have been moved over to permanent disability pension thought, so the picture is quite muddled.) But then Norway has been booming, so we could absorb the unemployed.

The problem is if you restrict unemployment benefits while the labour market is tight. What you will probably get is a downward pressure on wages in lower-paid jobs, as workers are forced into getting a job. Corporate profits rises, the rich makes more, the poor makes less.

by Trond Ove on Wed May 3rd, 2006 at 11:24:16 AM EST
[ Parent ]
The Hartz IV legislation as originally written provided for aid in finding jobs (although retraining has become something of a dead letter), but many of the employment offices just don't have the manpower (for want of a less sexist word) to do this. All that the recipients see is a stick.

And at this juncture it is worth noting that Germany does not have a minimum wage.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Wed May 3rd, 2006 at 11:50:09 AM EST
[ Parent ]
DVX, you're obviously not in touch with reality otherwise you wouldn't write such nonsense.

The 3% tax increase on the wealthy is justified. To not apply this tax on small and medium size business owners is also a good idea, because experience shows that they re-invest their money into the business. They also create more real jobs than high income earners of big corporations.

Also, it is not true that the federal labour exchange offices and comunal council social affairs agencies are understaffed.

As to job training programs. They exist and people take advantage of them. In my larger family I have a young single mother who, due to the young age of her kid, claims unemployment money. She will start a training program in August to get her school degree and to follow an apprenticeship to qualify in a profession. The rent for her flat, the kindergarten fees for the kid, her school and the job training is paid for in addition to her monthly social welfare cheque.

Should you ever want to know more about Germany's  fraudulent social welfare claimants then you have to go no further than to the beach bars of the Dominican Republic, to Miami Beach and Ft Lauderdale in Florida, or to the Philippines and to the Greek and Spanish holiday islands. You will find a robust sub culture of illegal 'residents' who live on their monthly welfare income from Germany.


"The USA appears destined by fate to plague America with misery in the name of liberty." Simon Bolivar, Caracas, 1819

by Ritter on Wed May 3rd, 2006 at 05:34:19 PM EST
[ Parent ]
dvx did not say that the tax increase wasnt justified. It is strange that you claim to know the status of all communal council social affairs agencies in Germany by the way. Just with my limited knowledge of Norway, I know there is a large difference between the individual municipalities. Germany, being vastly more federal in character HAS to have wider variances. Unless the agencies are run directly by the German state I guess...

As for fradulent social welfare claimants, you should take a look at the "welfare mom" craze of the 80's in the United States. The fact that some people are taking advantage of the system does not mean that a majority of the recipients are doing so. It seems you have swallowed some propaganda...

by Trond Ove on Thu May 4th, 2006 at 02:52:19 AM EST
[ Parent ]
Yes, I know the staff status of all the federal labour exchange offices and the local council social affairs agencies in Germany. And yes again, the federal offices are run directly by the federal government and the local offices are financed with federal money.

And no, I don't have to take a look at Rush Limbaugh, Sean Hannity and O'Reilly when I talk about the widespread abuse of the social welfare system in Germany. Our conservatives are socialdemocrats. Also, I used to work for the administration (Sozialämter and Finanzministerium) on the local, county, regional and state level in West and, later, in East Germany. Apart from that I met with clients of the welfare agencies at Hansis "Wienerwald" in Puerto Plata, Helmuts "Arke Noah" in Las Terrenas, in Toms "Tomrep" Bar in Sosua, in the "Dive" on Las Olas Bvd in Ft Lauderdale, in Capicotta's beach discos near Ostia/Rome, and saw them on the lovely island of  Corfu/Greece and not least in Sitges/Barcelona.

Tomrep Bar in Sosua:

More holiday fun pics at:


"The USA appears destined by fate to plague America with misery in the name of liberty." Simon Bolivar, Caracas, 1819

by Ritter on Thu May 4th, 2006 at 07:12:03 AM EST
[ Parent ]
If the inequality among the top few percent and the rest of the country keeps increasing, and high-earners earn more money faster than ever before, doesn't it make economic sense that the ratio of increasing taxes goes up as well?

For example, if I make a million euros per year and my income is increasing at a much faster pace than the majority of the population, wouldn't it make sense to adjust progressive taxation to reflect that pace?

Mikhail from SF

by Tsarrio (dj_tsar@yahoo.com) on Wed May 3rd, 2006 at 12:38:11 PM EST
Income earned through the proprietorship of one's own business is exempt from the "rich tax", presumably because they didn't want to look like they were being "hard on small business". To me, that says they're not really serious either about fairness or collecting more revenue from high earners.

Incidently, the president has indicated that he will not sign this into law but instead refer it to the Constitutional Court so that they can determine whether this discrimination is constitutional.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Wed May 3rd, 2006 at 12:59:42 PM EST
[ Parent ]
Here is a news story about a member of the vast community of German 'residents' who manage to live on their welfare income in sunny countries. What is more is that this member was so clever that his expat welfare receipient status was officially recognized by the German authorities.

 German welfare system balks at Florida Rolf

A German pensioner who provoked outrage after it emerged he was getting more than €1,900 (£1,330) a month in welfare benefits while living on a palm-fringed beach in Florida was last night told the good life was over.

A German pensioner who provoked outrage after it emerged he was getting more than €1,900 (£1,330) a month in welfare benefits while living on a palm-fringed beach in Florida was last night told the good life was over.

Germany's welfare ministry confirmed that the 64-year-old - nicknamed Florida Rolf by German tabloids - would not be eligible for benefits from next year. Payments would only carry on if he returned to Germany, officials said.

The case has caused uproar as the country's leader, Gerhard Schröder, tries to reform the welfare system and grapples with a large hole in the country's public finances.

Last month it emerged that the German state was paying benefits to Florida Rolf which included €875 a month towards the rent on his Miami Beach apartment, as well as €730 a month in living costs and €146 for his cleaner. German welfare officials had earlier tried to reduce the bill.

But the pensioner - identified only as Rolf J - hired a lawyer who argued that he should not be obliged to go back to Germany, as this would mean he would not be able to see his friends any more and might become depressed.

A court in Lower Saxony accepted the argument and ordered the state to continue the €1,906 payments.

After the story broke last month, Chancellor Schröder abandoned discussions on Afghanistan to discuss what should be done in regard to Florida Rolf, declaring his case a "really horrible example".

Mr Schröder has been struggling to reduce Germany's huge budget deficit and high levels of unemployment.

Officials discovered that 1,055 other Germans in 83 countries were also claiming benefits. The bill came to €5.5m.

Yesterday, however, Germany's Social Democrat welfare minister, Ulla Schmidt, said the law would be changed. Only German expatriates who had a long-term illness or were in prison could get benefits. The others would have to return home if they wanted to receive the money, she said.

"Social security under palm trees won't happen in future," she added.

Last night, Florida Rolf said he had not decided whether to leave Florida - his home for 14 years - but he described the German government's decision as "pitiless".

Rolf, who spends most of his day on the beach, said he was once a millionaire banker. But he suffered a breakdown after losing his fortune and his wife, and decided to move to the US. "I always paid my taxes, and I lost my father in the war," he said. "I've done enough for Germany."

German officials said the change in the law would come into effect next April, and Florida Rolf would continue to receive benefits for three months after that. If he failed to return to Germany, the benefits would stop.

"We will still have to pay for Florida Rolf's return ticket to Germany," said a spokeswoman from social welfare ministry. "And if he gets depressed, we would pay for psychological treatment - but only if he comes back."  

"The USA appears destined by fate to plague America with misery in the name of liberty." Simon Bolivar, Caracas, 1819

by Ritter on Wed May 3rd, 2006 at 06:54:52 PM EST
What does the FT know that I don't? If those figures are correct the Euro is now worth $1.66?
by bil on Thu May 4th, 2006 at 12:22:34 PM EST
We agreed in the breakfast thread that it's a typo and they mean $315k instead of $415k.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Thu May 4th, 2006 at 12:24:08 PM EST
[ Parent ]

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