Germany’s council of economic “wise men and women”, publishes its main report each
November. All the buzz in Germany is about how they judge rules on pubic debt, but what does it say about… TAXATION?
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November. All the buzz in Germany is about how they judge rules on pubic debt, but what does it say about… TAXATION?
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If you have time, go read in the original (550 pages), or the executive summary (English version: 8 pages) sachverstaendigenrat-wirtschaft.de/en/annualrepor…
First observation: Taxes play a minor role. There is no chapter on tax policy (the transfer system gets a chapter). I found that surprising, given the amount of discussion on minimum taxes, digital service taxes, financial transaction taxes we had in the last months.
Ok, perhaps I focus on tax news too much.
So, what is there? Hidden in the chapter on the business cycle, there is a recommendation that a permanent reduction of income taxes, the corporate tax, or the energy tax would set positive incentives for production and employment.
@AchimTruger & @Isabel_Schnabel mention that tax cuts could be sensible no matter the business cycle, as they are not as quickly to implement as the majority opinion suggests. They also warn that lowering taxes could hinder public investment, given the constraints on public debt.
What else on corporate taxes? The chapter on industrial policy suggests improving the tax system to encourage start-ups. It’s rather general about it, but I like the suggestion to reduce limits on tax loss offset – I even have a paper that shows how better loss offset ...
...leads to more corporate risk-taking (aaapubs.org/doi/10.2308/ac…). However, the main reason for these rules is that if loss carryforwards can be “sold”, it’s an opportunity for tax avoidance. I’m missing some discussion on that.
There is also a passage on patent boxes and that they are more likely to increase tax competition than increase R&D – agreed!
Then, there is a whole chapter on inequality and how the decision to work is affected by the tax-transfer-system. They point out that the implicit tax (=lower transfers) can be over 100%. The main idea here is to increase the implicit tax on people...
...who work very little (earning less than 100€/month), but lower it on those who work more, to make work more attractive. And, importantly, the whole system needs to be simplified! They state that an EITC would be too difficult to administer, but I don’t really understand why.
If you want to see how the recommendations compare to last year’s, check out my thread on the 2018 report:
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@Lars_Feld @Isabel_Schnabel @AchimTruger @WielandVolker , please correct me if something is wrong.
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@Lars_Feld @Isabel_Schnabel @AchimTruger @WielandVolker , please correct me if something is wrong.
