GERMANS AND THEIR INCOME TAX

Otago Daily Times, Issue 18508, 20 March 1922, Page 6

GERMANS AND THEIR INCOME TAX

AN INTERESTING ANALYSIS. , COMPARISON WITH PRE-WAR BURDENS. A good deal has been hoard recently of the comparatively favourable position occupied by tho German taxpayer as contrasted with tho over-burdened British. The following analysis (by the Berlin correspondent of the Westminster Gazette)' is therefore of topical interest. English readers have happily had no experience of tho incessant revolutions in the incidence of direct (and partly also of indirect) taxes caused by the great price rises which follow every serious collapse of an exchange. In principle these incidence revolutions arc as follow : Each considerable price rise automatically alleviates taxes on capital and wealth, in so far os ihe taxes are not immediately collected ; and automatically increases the real burden of the income tax. Both points are illustrated concretely. 1. A Government levies a progressive tax on capital wealth, which on wealth of, say, 1.000. marks is at the rate of 30 per cent. Such a tax—e.g., the German Emergency Levy, can be paid only in instalments over a term of years. The taxpayer owes the State 300,000 marks. Before one year is out, the rise in values caused !y tho currency depreciation is 100 per cent. The taxpayer’s capital wealth (if not invested in loans oi - bonds) is now worth 2.000. marks instead of 1,000 ; 000. His debt to the State, however, remains 300,000 marks. Instead of paying 30 per cent, he pays only 15 per cent. This is merely <*n instance of the truth that currency depreciation favours the debtor and injures the creditor, who in this case is the State. 2. A Government demands 10 per cent. in income tax on an income of 10,000 marks, which is a minimum income, it demands 50 per cent, on an income of 20,000 marks, and so on progressively. Again within a year the value of money falls to half, and incomes more or less rise correspondingly. The workman to whom 10,000 marks was % minimum inpome now earns 20,000 a a a minimum income j but whereas at first he paid in income tax only 10 per cent, of his minimum income, he is now required to pay 30 per cent., though the amount of food, clothing, housing, etc., is unchanged. ’ POST-WAR. CHANGES. As regards No. 1, the Government, whose only expenses have doubled, _ finds it hag bben "done.” As regards No. 2, ( the in-come-tax payer finds he has been “done ; but it is soon proved to be impossible to enforce against a minimuin working-class income of 20,000 marks the 30 per cent. which was practicable when 20,000 was p middle-class income. For this reason, a* regards No. 1, Germany has been obliged to substitute triennial reassessments of capital wealth for fixed assessments; end *• regards No. 2 she has been obliged to _ reduce'’ the income tax —that is, to reduce the progressive rates on nominal income, but not on real income. In this is nothing new. _ Prussia a pre-war income tax was levied on incomes exceeding 900 marks, then £45, but now the pneo of two pairs of boots. Since the war the new Federal income tax has been repeatedly reduced.” By the first income tax (of early 1920) only 1500 marks income was exempted ; the rate on the next 1000 marks was 10 per cent., next 1000 11 per cent., and so'on; and on the fifteenth thousand 24 per cent, was taken In pleasure as the currency decayed and prices rose, the tax had to l>e “reduced"; and it was last reduced in March, by which time tho rate on an income of 30,000 marks was only’ cent. Now it has been again, “reduced. The March rates and the now rates (intermediate steps being omitted) are:—

To-day 10,000 and even 20,000 marks are below the minimum existence income. In foreign quarters these “reductions ’ have been dreadfully distorted, not only in falsely making out that the German income tax is light, but also in making out falsely that it is even heavier than it is. The latter mistake is made by converting _ the paper mark income and paper-mark income tax into pounds, dollars, or gold at current exchange. This method is wrong, because Germany paper mark incomes do not correspond to the exchange depreciation of the paper mark; it is even obviously absurd because German gold incomes, reckoned by the gold exchange, fell between January and now to about one-fourth, and they may, if the mark exchange recovers, quadruple in a few months; and obviously the real incidence of a tax does not vary in this violent way. In fact, if one takes the “normal” pound exchange at 1000 marks (which is half way between the present and the highest November rates), we get the following picture of the German income j —. . '

THE CORRECT TEST. The gold exchange teat is meaningless. The correct test is by taking the mark’s buying power, as shown not by commercial prices, but by the cost of living. _ This gives the real incidence of German incometax. Tire following figures I have worked out myself. They are baaed on the assumption that the cost of living since 1914 has risen 15 times. The last official index, for November, was 1237, or practically 14 times, but prices continued to rise in December, and 15-fold is approximately right. The following table shows the present buving power in gold marks of the paper mark incomes listed above, and the amount in wounds taken in income-tax: —

This table gives a fair idea of the real incidence of the German income tax as can be given without still more • elaborate calculations. The rates are extraordinarily heavy, but not so impossibly heavy os is shown by the fictitious gold-exchange calculation ; by the latter an income of £IO,OOO is shown to bo paying nearly 60 per cent., whereas by the correct buying-power calculation this high rate is not reached until income is £53.030. The present tax is very much higher than the pre-war (Prussian) income-tax. Thus whereas the present tax on a real (buying power) income of £132 is £l2 Ss. the pre-war tax on the same income was £2 4s or only a fifth; on a present real income of £660 the present tax is £150; before the war it was £l9 10s; on a present real income of £33.000 the present tax is £18,843; before the war it was £2640. Before the war there was also a separate municipal income-tax, which is included in the present income-tax; but since the war ■have been imposed other new taxes pn income —a 10 per cent, tax on all dividends and incomes, and a 10 per cent, income-tax on company profits, whieh last is raised to 30 per cent, by DrWirth’s pending financial reform.

In March To-day Income. paid. pays. Marks. Murks. Marks. 10,000 880 700 20,000 1,880 1,780 40,000 6.S30 3,760 200,000 ... 81,600 43,600 1,000,000 631,600 386,600 10,000,000 ... 6,251,000 6,710,600

Income (marks). £ Tax. £ e a. 10,000 eq. 10 pays 1 U 0 20,000 cq. 20 pars 1 16 0 40,000 pq. 40 pays 3 15 0 200,000 eq. 200 pays 45 10 0 1.000,000 eq. 1,000 pays 385 10 0 10,000,000 eq. 10,000 pays 6,710 10 0

ja;iuiud w*"vi Income (paper m.) In bnylng-powcr (gold m.)' £ Whereof ino. Tax. £ id. 10,000 eq. 660 eq. 33 2 6 0 20,000 eq. 1,320 eq. 66 5 16 0 40,000 eq. 2,640 eq. 132 12 8 0 80,000 oq. 6,280 eq. 264 34 10 0 200,000 eq. 13,200 eq. 660 150 0 0 1,000,000 eq. 60,000 eq. 3,300 1,270 0 0 18,343 (• 0 10,000,000 eq. 660,000 eq. 33,000