Olaf Scholz, Chancellor and leader of Germany’s coalition government, has proposed that Germany scrap Ehegattensplitting, a law dating back to the 1950swhich provides couples who are married with significant tax benefits.

Scholz proposes scrapping Ehegattensplitting

Since 1958, married couples in Germany have enjoyed a generous tax break thanks to the Ehegattensplitting law. This means that if couples decide to file their taxes jointly, their salaries will be added together and then halved. The tax office (Finanzamt) calculates the couple’s average income and uses this figure to determine how much income tax they need to pay. 

According to the German Institute for Economic Research, these tax breaks can amount to savings of up to 18.000 euros per year for married couples, while single people, unmarried parents or unmarried couples receive no such benefits.

After three years of high spending to quell economic crises brought about by the coronavirus pandemic and war in Ukraine, Germany is looking to reduce its debts by trimming what is deemed unnecessary financial fat.

Last week, revealing the budget for 2024, FDP Finance Minister Christian Lindner announced that the government would limit eligibility for the parental allowance (Elterngeld), a plan which would see an estimated 60.000 families in Germany no longer benefit from the policy.

The plan was quickly met with much opposition. Now, Lindner’s coalition colleagues are suggesting Ehegattensplitting be scrapped instead, a move which would save the federal purse an estimated 20 billion euros each year.

Critics argue married couple tax break encourages gender inequality

Critics of Ehegattensplitting see the law as archaic, one that cements 1950s gender roles by awarding greater tax benefits to couples with greater income disparity.

"Women are disproportionately affected because they are disproportionally the classic "second earners"," Katharina Wrohlich, professor of public finance, gender and family economics at the University of Potsdam told Deutsche Welle. 

Women in Germany earn an average of 18 percent less than their male counterparts. And economists argue that with Ehegattensplitting, women in heterosexual marriages are incentivised to keep earning less than their husbands in order to maximise the tax break, which makes them more financially dependent on their spouse. This also increases the chance of women carrying the burden of unpaid reproductive work, such as childcare and domestic labour.

These consequences of Ehegattensplitting lie in opposition to those of Elterngeld, the intended outcome of which is to reduce gender inequality in heterosexual couples by giving mothers financial independence, encouraging their return to work after giving birth and motivating fathers’ to be more involved in raising their children.

As well as reducing gender inequality, critics argue that scrapping Ehegattensplitting would reduce wider economic inequality and add more to the public purse since married couples who are both high-income earners would pay more in income tax if they are taxed individually.

FDP and CDU / CSU oppose cutting marriage tax break

At the moment, two-thirds of Germany’s coalition - the SPD and the Greens - are on board with Scholz’s plan to scrap the tax break. Convincing Lindner and other FDP members, some of whom have called the plan “a sham”, seems less likely.

Since the policy was not included in the government’s coalition agreement, and the conservative Christian CDU / CSU opposition will almost certainly vote against the change, it is unlikely that Scholz’s proposal will garner enough support to make it through the Bundestag and Bundesrat.

Thumb image credit: M Gl / Shutterstock.com