Fundamental Reform of Income Tax: In How Far Can the Assessment Basis Be Broadened and Tax Law Simplified?
AbstractIntensive discussion is now underway on the tax reform concept put forward by Paul Kirchhof. Analyses based on extrapolations of individual tax return data from the income tax statistics show that ending the main tax concessions and allowances would not be enough to compensate for the loss of revenue from lowering the top rate of tax to 25%. Moreover, the importance of simplifying the tax system is being exaggerated in public discussion. A much simpler tax system is neither necessarily efficient nor fair. Politicians must look for reasonable compromises here. With the appointment of Paul Kirchhof, Professor of Tax Law and former Judge at the Constitutional Court, to the Union parties' competence team the discussion on fundamental reform and simplification of the German income and corporate tax system has intensified. Kirchhof has put forward the most far-reaching proposal for tax reform of recent years in a concept developed with his research group on the Federal tax code. He wants to see an almost flat rate income tax of 25% on all taxable income over euro 18 000; in return, all tax concessions and exemptions related to specific types of income would be dropped, while lump sums would be allowed for some income-related expenses and operating expenditure. The tax regulations would also be tightened and their application simplified by thoroughly systematizing and redrafting the income tax laws. DIW Berlin carried out a study of this and other proposed reforms in April 2004 in regard to the revenue they would yield and their distribution effects, as well as their effects on the supply of labour. The main conclusion was that a clear drop in the rates of tax, particularly in the upper incomes range, would cause considerable loss of revenue, and that this could not be made good by broadening the tax base or stimulating growth [...]
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Bibliographic InfoArticle provided by DIW Berlin, German Institute for Economic Research in its journal Weekly Report.
Volume (Year): 1 (2005)
Issue (Month): 32 ()
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