Prolongation of Solidarity Surcharge: False Signal in Tax Policy?

Since its introduction in 1991 the solidarity surcharge has repeatedly led to controversy. Should it expire in 2019 as scheduled, or continue to be levied for an unlimited time period? In the opinion of Gisela Färber, Deutsche Universität für Verwaltungswissenschaften Speyer, the solidarity surcharge is not appropriate as a regular tax and its abolition by 2020 at the latest is necessary for fiscal federal and tax law/systematic reasons. The abolition, however, should form part of negotiations over the solidarity pact III in the context of a federalism reform commission. Until 2020 financial resources should be used in the sense of the federal consolidation programme of 1993. Revenues from the solidarity surcharge, which are increasingly no longer required for the SoBEZ benefiting the new Länder, could be used to finance the rehabilitation of infrastructure, especially in the structurally weak Western German Länder. André W. Heinemann, University of Bremen, stresses that the solidarity surcharge is an additional levy, and thus a tax that generates general revenues for the government without being clearly earmarked. Since the “Soli” (as the tax is widely known in Germany) is exclusively paid out at a federal level, it gives the federal government funds to carry out federal tasks without having to go through the difficult voting procedures associated with federal and state taxes. Tanja Kasten, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Essen, also emphasises that the solidarity surcharge is “plainly a federal tax”. In her view, the abolition of the surcharge is both justifiable in budgetary terms and desirable with a view to a simple, fair and transparent tax system. For Reiner Holznagel, Bund der Steuerzahler, and Jens Lemmer, Deutsches Steuerzahlerinstitut, the solidarity surcharge is an anachronism; and it is high time for the surcharge to be abolished. This could even be carried out in the short-term, since it would not be subject to the approval of the German federal council. The federal budget could also withstand the loss in revenues with a reasonably ambitious savings policy, especially since current additional tax income and historically low interest rate levels are saving the government tens of billions of euros every year. If, on the other hand, the solidarity surcharge is prolonged on an unlimited basis, this would, in their view, send a disastrous signal to German taxpayers.