Should social insurance contributions or taxes be reduced: What is the correct tax and fiscal policy approach?

Should social insurance contributions or taxes be reduced: How should citizens be given a share of the revenue increases from the economic upswing, and who should profit most? Walther Otremba, Federal Ministry of Economics and Technology, argues for tax cuts. In his opinion regular corrections to the tax system, in particular flattening out the progression rate, are indispensable in order to avoid damage to growth and employment. He does not, however, exclude lowering social insurance contributions. With taxes it is not a matter of lowering rates or giving gifts but of taking back hidden tax increases brought about by a combination of inflation and progressive tax rates. For this reason the discussion is almost always conducted under false assumptions - there is no real substitution relationship between taxes and social insurance contributions. The question of whether social insurance taxes could be lowered should be made dependent on the implementation of concrete cost-curbing reforms on the expenditure side. Alfons Kühn and Anne Zimmermann, German Chamber of Industry and Trade, emphasise that there is budget-policy leeway for reduction of taxes and fiscal charges. Firstly, the high contributors in the medium income ranges should receive relief. Then attention should be given to providing relief in the lower income sector. For the middle income group, an effective measure would be a correction of the income tax rates to eliminate the fatal effects of the cold tax progression with its hidden tax increases. Since a tax rate correction will not bring any relief to low-income groups that do not pay any income tax, here policy-makers should begin with the social insurance contributions.