Last year, the surcharge, which represents 5.5% of the income tax (IRS) and the Company Tax (IRC), generated about 13 billion euros for state coffers. Critics, however, argue that the impact of tax has been limited, as economic disparities persist: income remains lower and unemployment is higher in eastern Germany
Germany’s Constitutional Court ruled on Wednesday, the “surcharge of solidarity”, rejected an action filed by the FDP, which challenged the constitutionality of the tax created in the 1990s to finance German reunification.
The purpose of this tax was to reduce economic inequalities between East and Western Germany. However, although the “solidarity pact” associated with the measurement has expired in 2019, surcharge continues to be applied, which has generated criticism, especially among more liberal sectors.
Six members of the Free Democratic Party (FDP) appealed to court, claiming that tax maintenance violates the German Constitution, since the initial justification for its existence no longer applies. In addition, they contest the fact that, since 2021, about 90% of taxpayers are exempt from the rate, which, according to the complainants, is a violation of the principle of tax equality.
However, the court the arguments and considered the complaint “unfounded”, stressing that there is no legal obligation to abolish the surcharge. It also argues that since reunification, the measure represents an additional “financial need” for the government.
Last year, the surcharge, which represents 5.5% of the income tax (IRS) and the Company Tax (IRC), generated about 13 billion euros for state coffers. Critics, however, argue that the impact of tax has been limited as economic disparities persist: income remains lower and unemployment is higher in eastern Germany.
For economist Julia Jirmann, a specialist in the German tax system, the court’s decision reinforces the legitimacy of the tax. “The fact that the surcharge of solidarity now applies only to those who earn higher income does not make it less legitimate, on the contrary: it is now more necessary and more fair than ever,” he told Reuters.
