Monday, August 02, 2021
Economist on tax plans
Billions plus for left, big minus for liberals
Economist Florian Buhlmann has examined the tax proposals in the parties’ programs for the Bundestag election. In an interview with ntv.de, he explains what the expected and amazing results were and whether the financial plans are realistic.
Economist Florian Buhlmann, together with his colleagues from the Center for European Economic Research (ZEW), examined the tax proposals in the parties’ programs for the Bundestag election. In an interview with ntv.de, he explains what the expected and amazing results were and whether the financial plans are realistic.
ntv.de: As far as the effects of the tax plans in the election programs on people of different income groups are concerned, the result seems to correspond to the popular beliefs of the party clientele: The FDP wants to relieve above all the higher earners, the Union all, the upper income groups more clearly. The SPD, the Greens and the Left are planning a higher taxation of the higher earners, with the Left particularly striking. So far so conventional, right?
Florian Buhlmann: Yes, the election programs are rather conventional on this point. But there are also other elements beyond taxes in the programs that partially revise this picture: For example, the FDP also provides additional benefits for low-wage earners, who are not their core clientele.
On the other hand, the result of your calculations with regard to the effects on the budget balance is more surprising. Of all the liberals and conservatives, who swear by the black zero, there are big gaps. In the left camp, on the other hand, they even come up with a sometimes huge surplus.
In fact, according to this model, the proposals of the FDP would lead to EUR 87.6 billion less tax revenue, the Union to EUR 32.6 billion less revenue. In the case of the SPD and the Greens, on balance, we have increased income. For the left it is even a plus of a good 90 billion euros, with the left having changed its plans again in the final version of the election manifesto. Even with these figures on the budget effect, the following applies of course: One must not completely forget the other parts of the election manifesto.
Can you find counter-financing for these large tax holes at the FDP and Union? Both parties promise to return to the black zero quickly, i.e. not to incur any new debts.
I do not know of any specific austerity measures of this magnitude. The assumption behind the FDP program is that the tax relief will result in higher economic growth. Put simply: the incentive to work more is increased. People work harder, earn more, which also increases tax revenues. We have not taken such possible effects into account in our model.
In the United States, Republicans regularly try to implement such reforms. The result is sharply increasing deficits every time. The term voodoo economy has become commonplace for the idea that tax cuts are more or less self-financing. Do you see chances with the FDP concept that this could work, especially since all parties promise enormous investments in infrastructure and climate protection at the same time?
The attempts to implement something like this in the USA are mostly considered to have failed, that’s true. But it doesn’t have to be impossible. In models like ours, the effects of the election manifestos with all their aspects and the hardly foreseeable reactions of companies and employees to such incentives can ultimately not be precisely represented. If one is based on the corresponding economically liberal basic assumptions, it is at least not illogical.
Let’s take a look at the other side of the political spectrum. With the election manifesto of the Left, you have calculated gigantic additional tax income. Does that mean the program is solidly funded?
As I said, the figure is likely to be lower than the 90 billion or so in our calculation if we take the final version of the election platform as a basis. In addition, the program of the left contains a lot of additional expenditure in other places, for example in the case of pensions. In addition, the minimum wage is to be increased. This could have a direct or indirect impact on the federal budget through the labor market. Even with the proposals of the left, much depends on how people react to the changed incentives. The rich could try to avoid the wealth tax. This could have a negative impact on the economy as a whole and thus both directly and indirectly on tax revenues.
Max Borowski spoke to Florian Buhlmann