Analysis: Merkel under pressure to raise tax for rich Germans

By Dave Graham

BERLIN (BestGrowthStock) – As an age of austerity looms for some of Germany’s poorest citizens, pressure is growing to impose higher taxes on the richest, setting the scene for fresh conflict in Chancellor Angela Merkel’s ruling coalition.

Thousands have taken to the streets this summer to demonstrate against plans by Merkel’s center-right government to cut billions of euros in spending on the unemployed without imposing a similar burden on the other end of society.

Some senior figures from her conservative Christian Democrats (CDU) have urged Merkel to consider higher taxes for the rich, lest a steady slide in the administration’s popularity accelerate into freefall before six state elections next year.

This would set the CDU on a collision course with its junior coalition partner, the pro-business Free Democrats (FDP), whose campaign for tax cuts in 2009’s federal election won them a record share of votes, giving Merkel a center-right majority.

With support for the CDU now crumbling to levels rarely seen since Merkel took office in 2005, the pragmatic pastor’s daughter may decide that shoring up her own party is the lesser evil when parliament’s summer recess ends next month.

Gero Neugebauer, a political scientist at Berlin’s Free University, said arguing for higher taxes for the rich could convince centrist voters to turn out for the CDU in the regional elections next year without alienating the party’s right wing.

“The CDU needs something to drag itself back up, and there are good arguments in favor of it,” he said. “Everything that’s been suggested in the party to date would still leave the top tax rates well below what they were under Helmut Kohl.”

When Kohl left office in 1998, the standard tax rate for top earners was 53 percent. It is now 42 percent.

“TAX HAVEN”

Polls suggest that public unease about the welfare cuts has galvanized resurgent leftist opposition parties, all of whom have been arguing for higher levies for the rich, backed by a number of prominent campaigns by wealthy Germans.

“In some ways we’ve become a tax haven,” said Dieter Lehmkuhl, a retired millionaire who is part of an initiative for a wealth tax on Germans with assets of at least 500,000 euros.

Germany has had no formal wealth tax since 1997. Proponents point out that, according to the Organization for Economic Cooperation and Development (OECD), Germany raises tax revenues equivalent to barely one percent of GDP on assets, inheritance and property — only about half the OECD average.

In coming months, the center-left Social Democrats (SPD) and the Greens are due to unveil separate plans for a wealth levy. Germany’s highest court threw out a previous tax on the grounds that the way certain assets were valued was unconstitutional.

“Things are so out of kilter now that people can no longer improve their situation through hard work alone,” said Gerhard Schick, financial policy spokesman for the Greens.

Surveys indicate that if a national vote were held now, the opposition would crush Merkel and her allies, whose coalition lost its majority in the upper house of parliament after defeat in a regional election in May.

In March, three states accounting for about 21 percent of the population go to the polls. The biggest is Baden-Wuerttemberg, where polls suggest the CDU is in danger of being ousted after nearly six unbroken decades in power.

Baden-Wuerttemberg is one of three conservative-run states pressing for a reform of real estate tax. Reports say this could hit property owners with higher rates, but the states deny this.

RISING PRESSURE

Despite record economic growth, daily reports of infighting have whittled away combined voter support for Merkel’s ruling coalition to around 34 percent — some 24 percentage points behind the three leftist opposition parties.

Studies suggest popular discontent over the welfare cuts, which include measures to slash pension benefits, parental subsidies and heating allowances for the long-term unemployed, have created fertile ground for the chancellor’s adversaries.

After the cuts were announced in June, a survey for ARD television indicated four out of five Germans believed they were not being shared out fairly. Meanwhile, a poll for the weekly Der Spiegel said 86 percent of respondents felt the rich should shoulder more of the burden of the crisis.

On the far left, the Left Party has long pushed for a new wealth tax, and last week its co-leader Klaus Ernst urged the SPD and Greens to join forces on the issue.

The SPD has been reluctant to work at federal level with the Left, a grouping of former communists and disgruntled Social Democrats, but a wealth tax drive could extend their common ground and help turn up the heat on Merkel over higher taxes.

Concerted campaigning by the opposition has already forced Merkel’s coalition to do an about-turn and back a proposed financial transaction tax to help pay for the banking crisis.

“From that, you can see how we can apply pressure,” said Nicolette Kressl, finance policy spokeswoman for the SPD.

Merkel’s coalition initially pledged to cut taxes, but it has since retreated from this position, and some senior CDU figures like Saarland state premier Peter Mueller argue the top rate of income tax should rise to as much as 48 percent.

However, wary of stirring up more tension with the FDP, the CDU’s parliamentary base has not endorsed such proposals.

Having campaigned on income tax cuts, FDP finance expert Daniel Volk said a U-turn by his party was not feasible.

“This is out of the question in our view,” he said.

Analysis: Merkel under pressure to raise tax for rich Germans