Are taxes constitutional


Expert Opinion: Constitutional Limits of Cumulative Tax Burdens

In view of the high expenses to cope with the Corona crisis, the discussion about future tax policy is being intensified again. In our legal opinion, Prof. Kube demands that the total tax burden must be based on the economic performance of the taxed person. Tonight discussed with us on the stream. Register now!

The tax rate in Germany has increased in recent years from 21.8 percent in 2010 to 24 percent in 2019. In view of this significant increase and the high expenditure to cope with the corona crisis, the question arises of how tax policy should be designed in the next few years. Here, the proponents of tax relief and tax increases oppose each other. In addition to the economic consequences, this discussion should also take into account that there are constitutional limits to the total tax burden.

In his present report, Prof. Kube from the University of Heidelberg explains that the total tax burden across all types of tax must be based on the economic performance of the taxed person. After taxation, a substantial part of its economic income must remain. The Basic Law thus knows a system-immanent limit, even if it is still open at what percentage of the personal tax burden this applies. There is a constitutional loophole here that should be closed.

The fact that the total tax burden and performance must be in a balanced relationship also applies to the consideration of taxes in the state as a whole (i.e. federal, state and local authorities). The individual levels must take this into account when structuring the tax level in their area of ​​responsibility. For example, do not increase a state tax to such an extent that it alone exhausts the tax burden to what is constitutionally permissible. Prof. Kube is therefore in favor of a simplification of the tax system, in which the individual types of tax are coordinated with one another and their overall impact can be viewed well. According to Prof. Kube, levies are initially not to be included in the consideration of the total tax burden - but only as long as they do not take on the functions of taxes (i.e. general government financing).

This is an excerpt from our publication, which you can find in our Shop download.

Video presentation of the publication by Professor Kube

Main theses

  1. Taxes reflect rulership structures and understanding of the state, assessments of taxable matters and also the factual possibilities and limits of tax collection in a certain period of time. This explains the development and change in tax types. Nevertheless, once introduced, taxes were and are often retained. In normative terms, however, the constitutional update in competency norms does not exempt from the fundamental rights examination. This check is of great importance, especially in the case of updated tax types that overlap in the tax base.
  2. The area-specific yardstick for income taxation based on freedom and equality is the principle of taxation based on economic efficiency. The efficiency principle corresponds to the tax justification through the market income theory, according to which the tax state participates in the economic success that the individual achieves with the aid of the market infrastructure provided and guaranteed by the state. In terms of fundamental freedom, taxes on income, which are always linked to the acquisition of a specific asset item, are to be measured against the fundamental right to property in accordance with Article 14, Paragraph 1, Sentence 1 of the Basic Law. Several income-related tax accesses are to be checked in terms of their cumulative effect on income. Because they seek to justify themselves through the same increase in economic performance, the same specific additional acquisition. As additional encroachments on fundamental rights, income or corporation tax, trade tax, the solidarity surcharge and a possible wealth tax (as a target income tax) must therefore remain proportionate to the total of the burdens. According to the case law of the Federal Constitutional Court, this is a reliable finding.
  3. The cumulative income tax burden is only proportionate if the taxpayer still has a substantial portion of the property acquired in the exercise of economic freedom after accessing all actual and debit income taxes. This follows from the basic evaluation of Article 14.1 sentence 1 GG as well as from the principle of division of Article 14.2 sentence 2 GG. A destruction of the property acquired and thus of freedom is not compatible with Article 14, Paragraphs 1 and 2 of the Basic Law.
  4. As an area-specific yardstick for constitutional freedom and equality, the performance principle applies beyond income taxes to all taxes and thereby ensures consistent freedom and equality. The inheritance and gift taxes, which - complementary to the market-related income taxes - burden the non-market growth of assets, find their special measure based on fundamental freedom in the guarantee of inheritance in Article 14.1 sentence 1 of the Basic Law. The real estate tax covers the efficiency mediated by the real estate; As a communal property tax, it is particularly close to the principle of equivalence and, similar to inheritance and gift tax, is largely independent in its justification.
  5. In contrast, taxes on the use of assets have to be justified on the basis of the breadth and generality of their access in the overall system. The indirectly levied excise duties are linked to the efficiency, which is reflected in the consumption of goods and services. In view of this tax-dogmatic and constitutionally clear justification of the burden, it is unsatisfactory if the Federal Constitutional Court has so far remained very cautious in determining and locating an encroachment on consumption tax freedom. Passing the excise tax on to the consumer is a legislative and judicial presumption.
  6. The performance principle also corresponds with taxes on the use of assets with the tax justification through the state provision of infrastructures. The focus is on the one hand on the infrastructures that directly enable consumption, and on the other hand also on the infrastructures on which the generation of income is based, which in turn allows consumption. In this light, consumption taxes are presented as supplementary taxes on income, insofar as this income means consumption potential. Nonetheless, taxes on the use of assets only intervene in the general freedom of action that protects property in accordance with Article 2, Paragraph 1 of the Basic Law, but not - in the absence of sufficient factual connection - in the fundamental right of property in accordance with Article 14, Paragraph 1 of the Basic Law.
  7. The overall picture reveals a tax system which - apart from inheritance and gift tax and property tax, which are fundamentally separate taxes - is linked directly to the same income several times and which then taxes the use of the property, which as a rule is previously taxed on income (or inheritance tax). Income taxes and consumption taxes are complementary insofar as the income-taxed capacity (in the form of the property acquired) is not completely identical to the consumption-taxed capacity, which is expressed in the use of assets. Nonetheless, consumption is typically based on previous income, which is also taken into account by newer approaches to justifying consumption taxes. The result is the same taxpayer, the same assets - available for all taxes - and in some cases also related tax justifications. According to all of this, the tax system is only fair to freedom and equality if the performance standard is actually applied across areas, i.e. if the total tax burden is measured according to the overall performance. The common basic legal standard is Article 2, Paragraph 1 of the Basic Law, which requires a proportionality test of the overall tax burden. This approach corresponds to the actual, overarching goal of the frequent taxation system to ensure taxation based on freedom and equality, despite the very different personal profiles of taxpayers and correspondingly different manifestations of economic efficiency.
  8. Overall performance and total tax burden can only be determined and measured with limited accuracy, especially with statutory typification. It is therefore all the more important to add to the material burden limits the basic legal requirement to coordinate and justify the coexistence of taxes in the multi-tax system. The more substantive such a justification is, the more room for maneuver will be allowed to the legislature in the burden accumulation - within limits. Conversely, this results in the legal obligation to avoid unfounded overlaps of assessment bases, which lead to a non-transparent and unjustified multiple burden, and, if necessary, to provide mutual deduction options or tax crediting. Corresponding hinge standards for delimitation and crediting are therefore mandatory.
  9. The federal distribution of taxation competences in Art. 105 ff. GG has not only a competence-establishing function, but also a burden-reducing function, in particular through the naming of permissible tax sources and the related constitutional prohibitions of equality. Regardless of this, the basic right of taxation standards also apply without restriction to the accumulation of taxes that are designed and levied at different levels of the state. The fundamental rights can therefore stand in the way of a later addition of a considerable, ultimately overburdening tax burden in the federal burden structure.
  10. From the federal requirement of federal consideration it can be deduced that the federal government, states and municipalities must remain moderate in the use of tax sources in order to prevent the total tax efficiency of taxpayers from being fully utilized by individual taxes without others, constitutionally assigned tax sources could be used substantially.
  11. The analysis of the overall tax system that has evolved over time and the respective connection points of the individual taxes leads to a plea for a corrective reduction in the number of tax types. The market return should be recorded solely through income or corporation tax, the non-market growth in wealth through inheritance and gift taxes. The real estate tax has a special role as a real tax of the municipalities with equivalence reference. The efficiency expressed in the use of assets is recorded by the sales tax, which is already differentiable. In addition, there may be a few other taxes on performance, which manifest themselves in special forms of the use of wealth. Such a simplification of the multiple tax system leads the taxation back to viable, consistently interlocking burdens, thus ensuring an overall burden that is fair and equitable and relieves the need for numerous differentiation and crediting rules.
  12. Chargeable levies differ from taxes in the reason for the burden and consequently in the basic rights standards. They are therefore not offset against the cumulative tax burden. However, this only applies for as long and as far as the particular reasons for the tax payable actually bear. Should the state consider individualising the financing of certain general state tasks through the collection of remunerated taxes, this would result in a considerable problem of competence law and fundamental rights. The special charges, which are problematic in relation to taxes, require special attention. The particular responsibility of a social group that justifies a special tax must be obvious and must precede the simple legal structure of the tax.

“Fair performance is the core of the promotion promise: Those who work hard should have enough money left for a good life and for building up their wealth. The tax rate must therefore not increase any further. From a constitutional point of view, every taxpayer must retain a substantial part of his or her income. It is now the task of politics to define the limit for this. "

Karl-Heinz Paqué

Initial situation and expert opinion

Tax revenue in Germany has risen steadily and vigorously for many years, from around 483 billion euros (2010) to around 736 billion euros (2019) in the last decade alone .1 In an international comparison, the burden of taxes and social security contributions in Germany is moving at a high level.2 For some time now, an adjustment has been called for, in particular with a view to the interaction and the amount of income or corporation tax and trade tax, 3 with a view to the development of the income tax rate4 or also with a view to the further collection of the Solidarity surcharge.

As a result of the Corona crisis, the question of the constitutional limits of the permissible tax burden is now even more pressing. To cope with the crisis, the federal government alone will take on around 218 billion euros in new debt in 2020, 6 almost five times as much as in the previous record debt year of 2010 to combat the global financial and economic crisis (44 billion euros). This increases the debt level to around 80 percent of the gross domestic product. Even if quick and powerful action is required in response to the corona-related economic downturn, 7 the national debt will have to be repaid from tax revenues in the future, which will result in new, further tax burden pressure.

Against this background, the Friedrich Naumann Foundation for Freedom asked me to comment on the fundamental question of the constitutional limits of the permissible tax burden. The interest in finding out is directed not only to the collection limits applicable to individual taxes, but also to the constitutional requirements that are to be applied to the cumulative tax burden, in particular the total burden, which is decisive from the taxpayer's point of view. This is a question that is currently clearly in the room, which is fundamentally significant in tax law and highly relevant in legal practice. It draws attention to the coexistence and interaction of the individual taxes in the frequent tax system, to the importance of the respective reasons for the constitutional assessment, to the topos of the overall performance of the taxpayer, to the question of a necessary coordination of the tax burdens in the federal structure and also to the Relationship between taxes and non-tax charges.

“The analysis of the overall tax system that has evolved over time and the respective connecting points of the individual taxes leads to a plea for a corrective reduction in the number of tax types. (...) Such a simplification of the multiple tax system leads the taxation back to viable, consistently interlocking burdens, thus securing an overall burden based on freedom and equality and relieves the need for numerous differentiation and crediting rules. "

Hanno Kube

Historical development of the frequent steering system

Taxes as a mirror of their time

Taxes are always a reflection of their time. Taxes reflect rulership structures and understanding of the state, assessments of taxable issues and also the factual possibilities and limits of tax collection. A dirigist state that focuses on security and planning may tend to have a poll tax and, moreover, levy consumption taxes. The modern state, founded on the free private sector, on the other hand, chooses the income generated by the individual as the essential basis of taxation, because this income is made using the state provided.

Actual and constitutional update of traditional forms of taxation

Despite these very significant changes over time, it can be observed that taxes that were once introduced were and are often retained. The best example is the wealth tax just outlined, which typifies target returns in wealth and which, despite the introduction of the actual income tax, was not abandoned in the course of the 19th century, but was partially raised. The fundus theory11 developed in Prussia towards the end of the 19th century was the attempt to postpone a new justification for wealth tax to justify the juxtaposition of historically successive taxes that equally affect income.

Sometimes it is precisely the convenience of the collection that prompts the updating of taxes that were introduced at a certain point in time for a certain reason owed to the circumstances of the time. It is particularly convenient to levy indirect taxes, which are passed on in the price, on the consumption of goods and services.Once - especially with reference to a special state financing requirement - these taxes often remain in place, such as the sparkling wine tax introduced in 1902 to finance the imperial navy. Against this background, today we are dealing with a large number of different, special consumption and expense taxes in addition to sales tax as a general consumption tax.

In normative terms, it is significant in this context that historically established taxes are often carried through time by constitutional (competence) norms that are linked to old stocks and thus seem to be perpetuated, as it were.

However, this results in possible tax accumulations that have to be justified under fundamental rights of freedom and equality. In other words, the competency law system of historically established tax stocks does not exempt from the fundamental rights examination.13 This leads on to the fundamental legal standards of constitutional taxation according to the Basic Law.

  • This is an excerpt from our publication, which you can download here.