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Urgently needed: Reduction of over-taxation from hidden tax increases

Dieter Dziadkowski
ifo Institut für Wirtschaftsforschung, München, 2008

ifo Schnelldienst, 2008, 61, Nr. 10, 19-24

With increasing earnings the "cold progression" of the rate of income tax means, for the taxpayer, that his/her income tax automatically increases more strongly than earnings themselves. These hidden tax increases will grow in 2008 and 2009 due to the nominal wage increases, since a corresponding tax rate adjustment has not been made. In the opinion of Dieter Dziadkowski, former member of the Bareis Commission, in particular the too-low basic exception - to ensure that what is needed for a subsistence level - will lead to burdens on the taxpayer that are unconstitutional. To eliminate the distortions a regulation is necessary in which the income tax scale is constantly adjusted to inflation.

JEL Classification: H200

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ifo Institut für Wirtschaftsforschung, München, 2008