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Effective Taxation for Recipients of Social Assistance in Germany and the Consequences of the 1996 Tax Reform
Abstract
This paper explores the problem of effective taxation at the lower end of the income scale in Germany. For the recipients of social income maintenance--currently about 1.8 million nationals--effective taxation consists not only of the explicit taxation through the tax code but also of the implicit taxation through the withdrawal of benefits. The paper calculates effective tax rates for recipients of social assistance; it is shown that for labor incomes in the lower income range explicit and implicit taxation add up to a marginal burden of just under 75 percent on average. The 1996 tax reform alleviates the explicit tax burden on low incomes but it does not alleviate the total marginal burden on labor earnings of welfare recipients. It increases net incomes but since the withdrawal of benefits increases with net incomes too the overall burden remains practically unchanged. Therefore effective welfare traps remain prevalent; these could only be avoided through a reform of the system of social assistance and withdrawal. Constraints and possible steps for reform are discussed.
... Nonetheless, effective marginal tax rates generally remain high. Thimann (1995), for example, reviews the German social income assistance system. He finds that, over a wide range of incomes, recipients face high tax rates of close to 75 per cent (taking account of both social assistance payments and taxes). ...
In many countries, the targeting of income transfer schemes leads to a very high effective marginal tax rate on private income. How can the equity goals associated with targeting be made consistent with the maintenance of labour supply incentives? This paper reviews the inevitable trade-offs facing income-tested tax-transfer systems, and then goes on to examine the conclusions of a growing body of economic analysis of these questions. This analysis, growing out of the literature on ‘optimal income taxation' seeks to provide a framework for a balancing of the conflicting efficiency and equity issues involved in income-based redistribution.
Though existing research is not able to provide firm guidelines to policy, there are valuable insights - particularly from research that has begun to incorporate the administrative features of programs. These have major implications for the structure of income testing. Insofar as activity testing increases labour supply, one might argue for the use of a higher benefit withdrawal rate - since this permits a lower tax rate at other points in the distribution without defeating equity objectives. At the same time, economic theory has yet to seriously analyse the diversity of social goals in this area. Different social evaluations of the value of ‘leisure’ may have important implications for policy.
I do not doubt that some expert in modern economics would find it helpful to say that targeting should be pushed exactly to the point at which the marginal benefit from it exactly equals its marginal cost. Anyone who is enlightened by that wonderful formula fully deserves that enlightenment. (Sen, 1995: 22)
... Nonetheless, effective marginal tax rates generally remain high. Thimann (1995), for example, reviews the German social income assistance system. ...
This paper reviews the normative welfare economic literature on income-based targeting and contrasts its assumptions with those underlying current policy discourse. One current policy debate concerns the potential role for Earned Income Tax Credit (EITC) income tests. In general, economic models within the standard (for economists) ‘welfarist’ approach provide little support for such policies. However, much policy discourse is explicitly non-welfarist, placing a negative social value on the leisure or home production of the poor. From this perspective, EITC or workfare-type programmes may be socially optimal. The normative foundations of this policy discourse, however, have yet to be subject to the rigorous analysis that underlies the welfarist approach.
Der Abstand zwischen dem potentiellen Nettoarbeitseinkommen und dem Sozialhilfeanspruch (Lohnabstand) wird für verschiedene Haushaltstypen gemessen. Er ist im Jahr 2001 für Haushalte, die aus drei oder mehr Personen bestehen, gering. Der Lohnabstand hat in den vergangenen 40 Jahren abgenommen. Die marginale Belastung des Arbeitseinkommens von Sozialhilfeempfängern ist extrem hoch; sie beträgt in bestimmten Einkommensbereichen 100 Prozent. Die Arbeitsanreize für Sozialhilfeempfänger werden daher beträchtlich beeinträchtigt. Das Sozialhilfesystem hat die marktgerechte Anpassung der Löhne von Personen mit einer geringen Qualifikation behindert und zum Anstieg der Arbeitslosigkeit beigetragen.
The difference between the potential net wage income and the social welfare payments is measured for different types of private households in Germany. In 2001, the difference is small for households consisting of at least three persons. For three types of households the difference is calculated for the 1962–2001 period; it turns out that it decreased significantly. The (explicit and implicit) marginal tax rates for wage income of the recipients of social assistance are extremely high (up to 100 percent). Thus, the incentives to work are strongly impaired. The downward adjustment of wages for low skilled workers was impeded by the system of social assistance. As a consequence, unemployment increased.
This paper explores the implications of giving unemployed people -- particularly the long-term unemployed -- the opportunity to use part of their unemployment benefits to provide employment vouchers to the firms that hire them. The vouchers would depend positively on unemployment duration and training. The paper argues that this policy would give unemployed people and their potential employers an expanded domain of choices in the labour market and thereby reduce the market failures generated and amplified by unemployment benefit systems. A simple theoretical model is presented, followed by preliminary empirical estimates which suggest that the proposed policy may have significant potential in a number of OECD countries.
Die Diskussion um die Reform der Sozialhilfe
- Hauser
Anatomie der Sozialhilfe,
- Klanberg
Größerer Grundfreibetrag für Grenzsteuerzahler,
- Thormählen
Sozialhilfe auf dem Prüfstand,
- Erbe
Eckpunkte für eine Reform der Sozialhilfe,
- Seehofer