Lindner's tax reform benefits higher earners: criticism of traffic light tax plans

Calculations show that the traffic light tax plans particularly benefit people with higher incomes – and not average earners. Should those who earn more also receive more?

Berlin – Since the Corona pandemic and the war in Ukraine, the cost of living in Germany has continued to rise. One price increase follows the next, with energy and food in particular putting a strain on many households and reducing disposable income. Now, at the initiative of the FDP, the traffic light coalition is planning tax cuts, which will primarily benefit higher earners. For average earners, the question remains: is that enough, or is it just a drop in the ocean?

Higher earners favoured in Lindner’s tax cut plans: “Traffic light turns wrong”

With the planned tax changes, Federal Finance Minister Christian Lindner (FDP) wants to alleviate bracket creep – the hidden tax increase where a salary increase is eaten up by inflation, but higher taxes are still due. Although this measure is intended to benefit millions of citizens, they are the ones who will benefit most from the tax adjustments – even though they are less affected by rising prices than normal or low-income earners.

Lindner plans to increase the tax allowance for children this year, but not child benefit. This will help high earners in particular, as the allowance is only worthwhile for those with a monthly gross income of around 8,000 euros. Families who use the allowance can then receive up to 1,529 euros more relief per child than those who only receive child benefit, writes the South German Newspaper.

“The traffic light coalition is heading in the wrong direction,” summarizes Anja Piel, chairwoman of the German Trade Union Confederation. Compared to last year, the gap between those who use the allowance and those who receive child benefit has increased by almost 300 euros – and this despite the fact that the traffic light coalition actually wants to put families on an equal footing in the long term, as stated in the coalition agreement. Piel criticizes the fact that there is no money for low-income families for basic child benefit, but that money is now being distributed to higher earners via higher allowances. “One wonders how Finance Minister Lindner intends to explain this to poorer families.” According to SZ The Ministry of Finance says that child benefit has already been increased disproportionately in 2023, which particularly benefits low-income families.

Analysis by the Bremen Chamber of Employees reveals imbalance: high earners preferred

In 2025, the traffic light coalition also plans to implement tax changes on the initiative of the FDP leader: the basic tax allowance is to increase, from which all taxpayers will benefit, and the basic income tax figures and the exemption limit for the solidarity contribution are to be raised due to bracket creep. The Bremen Chamber of Labor expects SZ However, high earners will benefit from this. Singles earning 7,500 euros or more gross per month will gain around 500 euros per year – three to five times more than average earners. And high-earning families with two children and 8,000 euros will receive 400 euros less per year. Conclusion: the higher the income, the greater the relief. In contrast, average earners earning 2,000 to 5,000 euros will only receive around 100 to a maximum of 300 euros.

Lindner's press office will not comment on external studies. It says: People with higher incomes pay higher taxes due to the progressive tax rate, “this higher tax burden must not be ignored when considering who will receive greater relief.”

Lindner's tax plans do not benefit those who suffer most from inflation

However, a list from the Institute for Macroeconomics and Business Cycle Research makes the difference clear and points to a purchasing power gap that particularly affects families. Families with two children and a net income of 3,000 euros a month would have around 300 euros less at their disposal compared to 2021. The situation is even more difficult for single parents, while singles and higher-earning families are less affected by the wave of inflation – the group that will be relieved by Lindner's plans.

The Bremen Chamber of Employees presents in the SZ A counter-model is proposed that is also intended to relieve the burden on those who are particularly affected by inflation: average earners with children. Child benefit is to be increased to 275 euros a month, not just from 250 to 255. In addition, social contributions to health and nursing care insurance are to be reduced by a total of 0.8 percent. However, the model does not include an increase in the basic income tax figures and the exemption limit for the solidarity contribution. For a family with two children, social contributions are reduced and they receive more money: average earners with 2,000 to 5,000 euros gross a month would thus receive 700 to 900 euros more per year.

However, the model would cost five billion euros more than the traffic light plans if the reduction in social contributions only benefited citizens and not companies. “Our proposal is a relief package for the working middle class and for families,” says Magnus Brosig of the Chamber of Employees for the SZThe model could implement the goals of the coalition agreement: a reduction in social contributions and equal treatment of families – regardless of whether they use child benefit or tax allowances.