Birth makes the difference
Whom the spouse splitting prevents from earning money
By Christina Lohner
7/11/2023 6:29 p.m
Critics of spouse splitting complain that women are therefore less likely to work. Studies seem to agree with them. A tax expert still does not believe in abolition – but in a reform.
The demand is as old as it is up-to-date: SPD leader Lars Klingbeil would like to abolish marriage splitting for future marriages entirely, but his party colleague Hubertus Heil believes it at least needs reform. German tax law is “like it was in the 1950s,” said the labor minister on “ntv Frühstart”. His and the accusation of other critics: the spouse splitting keeps many women from working more. But is that really true? Malte Chirvi, tax consultant and guest researcher at Berlin’s Humboldt University, examined exactly this in a study. His result: yes – if the wives become mothers in the years around the wedding.
Minister Heil says: “If you want more women to work, then you need two things: better childcare and a reformed tax law so that work is worthwhile for everyone.” Numerous studies have shown that women would generally be more employed if the spouse splitting did not exist. In many cases, the regulation means that it is supposedly not worthwhile for them to work more in their profession – married couples enjoy tax advantages if one partner earns significantly more than the other. Critics of spouse splitting complain that women are therefore missing out on the labor market, which is plagued by a shortage of skilled workers, and pay less into their pension and social security systems. Apart from the fact that the tax advantage also benefits childless couples and unmarried parents on the other hand do not.
According to Chirvi, the studies carried out for Germany have a catch: they are always forecasts, as he explains in an interview with ntv.de. His Analysis from 2021 is, to his knowledge, the only one to date that uses data to retrospectively examine how women in Germany actually behaved on the labor market. The tax expert, who also teaches at the Flensburg University of Applied Sciences, compared the working hours of married women in the two years before and after the wedding with the working hours of unmarried women living in a marriage-like relationship. There was no difference without the birth of a child; without motherhood, newlyweds reduced their working hours no differently than women from marriage-like relationships. However, the women who are just before or after their marriage ceremony had a child reduced their working hours significantly more than comparable mothers who had not married. The unmarried mothers worked an average of 15 percent or almost six hours more per week.
“Constitutionally hardly possible”
“So it cannot be ruled out that the reduction in working hours is promoted by the spouse splitting,” says Chirvi. If the spouse splitting for future marriages were completely abolished, as desired by the SPD and the Greens, this could, conversely, have a significant effect on mothers’ employment. According to the study, the majority of those under the age of 35 had a child shortly after marriage. The data comes from the Socio-Economic Panel, an annual representative survey of private households in Germany. Chirvi evaluated the survey waves from 2002 to 2015.
Tax expert Malte Chirvi
(Photo: Private)
According to Chirvi, studies from other countries such as the USA or Great Britain also showed that married women were more employed if the tax advantages of a marriage were lost. Or if the tax burden on women fell, because the spouse splitting ensures that a significantly better earning partner apparently has to pay less tax and the less earning one more – usually the woman.
Chirvi still doesn’t think much of a complete abolition of spouse splitting. On the one hand, this is hardly constitutionally possible, on the other hand, in his opinion, numerous other rules that also apply to spouses would have to be changed. “It is often forgotten that the spouse splitting is only a small piece of the puzzle of the entire special legal treatment of spouses,” emphasizes the tax expert. Among other things, the so-called equalization of gains applies or that in the event of unemployment the income of the spouse is used. In Chirvi’s eyes, treating a couple financially as a community also makes perfect sense. Although not necessarily because of the marriage certificate: “It doesn’t have to be marriage, other people can get together and stand up for each other.” In his opinion, these should be taxed together.
Tax classes III and V are to be dropped
The tax expert does not expect the spouse splitting to be abolished, but rather a reform, for example in the form of a so-called real splitting, in which a tax exemption amount would be transferrable to the spouse. Chirvi calculates that most couples would not suffer any financial disadvantages as a result. But extreme cases with extremely different incomes, in which spouse splitting could save up to around 20,000 euros per year in taxes, would then no longer apply. “The maximum savings potential would be reduced to 6500 euros.”
According to Chirvi, the effects on the labor market would be significantly lower than if it were abolished, but real splitting could also increase the incentive for the partner earning less to work more. State tax revenues would also increase as a result, although not by the estimated €20 billion a year that the end of spouse splitting would bring. The tax expert assumes that a reform would add around ten billion euros to the tax coffers every year.
From Chirvi’s point of view, there would be a clear incentive to work more if tax brackets III and V were abolished, as the traffic lights are planning according to their coalition agreement. “Tax classes III and V suggest an unequal burden, it seems as if one spouse is very favored and the other is significantly worse off,” explains the expert. “But actually, both spouses save the same proportionately. It gives the wrong impression that it is not worth working for a partner. Getting rid of that would be a great thing.” In his estimation, the direct effect on the labor market would be almost as great as a reform of the spouse splitting system – without financial losses for taxpayers.