What is the ideal tax system
"The legal ideal of tax law is equality"
Jochen Spengler: There are many explanations why not only ex-post chief Klaus Zumwinkel, but hundreds of other wealthy compatriots have tricked and brought billions of euros from the German tax authorities in supposedly Liechtenstein security. One explanation for this is greed. Another is that our confusing, complicated tax system tempts us to look for and find legal and perhaps also illegal tax loopholes. One who has long been in favor of a radically different tax system is the former constitutional judge and director of the Institute for Finance and Tax Law at the University of Heidelberg, Professor Paul Kirchhof. Good morning, Professor Kirchhof!
Paul Kirchhof: Good morning, Mr. Spengler!
Spengler: Liechtenstein is fighting back, and the Hereditary Prince said yesterday that Germany should better use its tax money to get its tax system under control than to spend millions on data whose legal usability is doubtful. Is the prince right?
Churchyard: The prince is right in one part of the truth. First of all, he would have to agree to work through an administrative assistance agreement to ensure that all states jointly take action against all forms of fraud. This should be a matter of course in an open market, but has not yet become a matter of course.
Spengler: So no understanding for Liechtenstein?
Churchyard: Little understanding for Liechtenstein, but the essence of his statement is justified that the German legislator must do something because the applicable law is so confusing, so incomprehensible, so contradicting that a reliable legal awareness of tax liability has not yet developed.
Spengler: Let's stick with it. To what extent does our tax system encourage tax evasion?
Churchyard: Our tax system creates incentives for how to avoid the tax burden stipulated in the law. There are legal offers, a little earlier investments in shipbuilding, in films, in monuments or, as the case law said last year, in junk property.
Spengler: But are they almost all gone now, these possibilities?
Churchyard: They're not all gone. There are more than 500 exceptions, fuzziness, avoidance techniques. The legal ideal of tax law is equality. Anyone can bear the tax burden if they know that their neighbor has to pay the same for the same income. But if he has the feeling that I am clever, when I can play elegantly on this piano of tax law, I can elicit the cheerful tones of individual tax savings from him, then every tax assessment becomes an intellectual self-reproach. He no longer has the feeling that he has to pay because he was successful. That would actually be almost a nice feeling. He has to pay because he wasn't smart enough, and that's devastating.
Spengler: And does it benefit those who can count themselves poorly?
Churchyard Certainly, if you are skilful, tax law is sometimes like a game of chess. I just have to make the best moves with the tax office and I'll have a profit. And the bonus of the profit is the tax saving. It goes without saying that this tax law clearly defines the boundary between legal and illegal. But there is no law in Germany or in the world that people encounter with such clarity, first of all to ask how can I evade the law. I usually say the law ordered something, so I'll obey it. And here the taxpayer says what can I do to avoid the legally mandated consequence.
Spengler: Yes. There is a new study that has been mentioned in the media in the last few days, according to which the German tax system is the worst in the world. Do you agree with that?
Churchyard: Yes, there is a comparison of the 102 industrialized countries in the world, and Germany is in 102nd position. I have not checked this number now because you cannot seriously compare so many countries. But the basic assessment that we have a clear disadvantage in tax law in a world comparison, that this tax law causes people to go into economic irrationality, to do something that they would not do out of their own reason, that is obvious, that is daily with me Hands within reach. And the core problem is, there is no growing awareness that taxes have to be in a free state. There are other states that have nationalized all of their companies. The state is the ruler over wages and prices, it doesn't need taxes. But a free state that leaves economic life in free hand, gives the worker freedom, allows the entrepreneur to set up companies and shape them as they want, must finance itself through tax participation in the success of private business. The medal, where there is freedom stamped on top, taxes must be stamped on the bottom, otherwise the system will not work.
Spengler: Professor Kirchhof, when you were on Angela Merkel's competence team two and a half years ago, you argued for a uniform tax rate of 25 percent on all income, regardless of whether it was wages, profits or interest. In addition, there were high allowances per person, 10,000 euros and 8,000 euros per child. Nonetheless, this has come across as unjust among the population. Why shouldn't a millionaire have to pay more in percentage terms than a worker?
Churchyard: We would have achieved a lot if he really paid 25 percent. And there again the problem is that we have to develop legal awareness. If you ask today how much tax you have to pay, nobody knows because there is a mathematical formula in the law that nobody can read. But if it says you have to pay the biblical tithing, or you have to pay a quarter, which is the case in Germany for the next 20, 30, 40 years, then it is imprinted as a civic duty. The citizen still does not enjoy paying taxes, but he knows that in this liberal system that is the price of freedom, a quarter for the state, three quarters for me, of course with high tax allowances, you said it. The small incomes must be completely relieved, tax exemption 10,000, and then you have to graduate with 15, 20, 25 percent.
Spengler: But in the meantime you would be stepping up? The one who deserves more ...
Churchyard: I have from the beginning. My system was published in 2003, two years before the election campaign. It was always a tier system. That was portrayed a little differently back then in the excitement of the election campaign.
Spengler: Before the general election, many politicians talked about tax simplification, even if they weren't always referring to your model. Today nobody talks about it anymore. Is the subject dead?
Churchyard: I think the issue is starting to become dramatic again, and it is not dead. Because the legislature has introduced the flat tax for next year, for income from capital assets the flat tax of 25 percent for everyone, and that of course will Ask the question if 25 percent is enough for investment income, which I consider right, whether I can then charge 45 percent at the top for income from work. Political reason and the principle of equality show us the right way here.
Spengler: Thank you for the interview, Professor Paul Kirchhof!
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