Germans Desire a Simplified Tax System
Research
German citizens think it is time for an income tax overhaul, with more than 90 per cent expressing the wish for a simplified system. According to the respondents, deductions and allowances in the German tax system are of particular benefit to high-earning households, and the acceptance of tax concessions increases only if they compensate for special circumstances. There is, however, a lack of awareness regarding the disadvantages that a simplification of the income tax system would entail. These are the results of an evaluation of a representative survey carried out as part of a recent study by ZEW Mannheim.
The study is based on a survey of 2,464 people from all over Germany, which was conducted as part of the German Internet Panel of the Collaborative Research Centre “Political Economy of Reforms” in Mannheim. 92 per cent of participants consider the German tax system with its many concessions to be “strongly” or “rather” in need of simplification. The study shows that older people in particular are in favour of a simpler tax system. The same goes for citizens who consider it difficult to file their tax declaration in its current form. Only 20 per cent of the respondents who said they make their tax declaration themselves find it “easy” or “rather easy” to file a tax return.
In order to find out whether the survey participants reject a complex tax system with concessions not only in general but also in specific cases, they were presented with three different scenarios. Each scenario included two persons with the same gross income, each time differing only with regard to one characteristic, i.e. the care of a family member, donations for charitable purposes, and the length of the commute to work. The commuting allowance is also the tax benefit that the respondents themselves have used most.
Majority opposes compensation for self-chosen circumstances
60 per cent, i.e. almost two-thirds of all respondents, are in favour of tax breaks for caring for relatives. The majority of respondents (59 per cent), though, are against tax allowances for commuters, and 66 per cent of respondents believe that charitable donations should not be tax deductible.
“Our survey shows that what matters for most respondents is whether circumstances are self-chosen, such as a long commute, or making donations,” says Sebastian Blesse, a researcher in the ZEW Research Department “Corporate Taxation and Public Finance” and co-author of the study. “In these cases, people are mainly in favour of certain tax allowances when they themselves benefit from them, which is why around 45 per cent of commuters support the commuting allowance, whereas only 25 per cent of non-commuters support it. The situation is different for circumstances that are not self-inflicted, including, for example, if someone has to care for a parent. 58 per cent of those surveyed who do not have to take care of their own parent would still like to see tax relief for those affected.”
Another result of the survey is that people in Germany perceive allowances and tax deductibility to be socially unjust. According to a majority of respondents, it is above all high earners who are benefited.
In the further course of the survey, participants were randomly divided into three different groups: a (first) control group, which received no further information; a second group, which was presented with arguments in favour of simplifying income tax; and a third group, which was presented with arguments against a simpler income tax system. With this experiment, the researchers wanted to find out whether people change their attitudes towards tax simplification when they learn more about the reasons for and against it.
Advantages of deductions and allowances are often unknown
It was found that the participants often critically revised their originally positive stance towards tax simplifications. “Support for a simpler tax system decreases as soon as participants receive information about the advantages of tax benefits, suggesting that there is a lack of public awareness about the plethora of deductions and allowances,” says Florian Buhlmann, a researcher in the ZEW Research Department “Social Policy and Redistribution” and co-author of the study. “In contrast to that, providing arguments in favour of simplification have virtually no effect on the respondents’ attitudes. One possible reason for this is that most respondents already prefer a simpler tax system anyway.”
When asked what a reform of the German tax system should look like, answers varied considerably, even though only six per cent wanted to retain the current system. But there is great disagreement about whether tax benefits should be abolished as part of the reform. Some participants preferred a constant tax rate, while others preferred a more progressive tax system. Another option favoured by some is not to change the tax rates and benefits but to simplify the tax declaration via pre-filled forms.
The researchers found that despite the general desire for simplification, there is no social consensus on what reform should look like. It is hardly surprising then that income tax regulations were last reformed between 1996 and 2005. The authors of the study recommend launching a debate on the advantages and disadvantages of a complex tax system, hoping this will help citizens form a well-informed opinion that goes beyond a rash demand for tax simplification.