01 April 2022

The Public Thing

Most people only deal with tax law when they absolutely have to, and in my impression that includes those who do German public law for a living. Tax law is public law after all, a thoroughly constitutionalised area of law at that, with tons of BVerfG case law. But the legal interest is first and foremost in the private person: the taxpayer and his or her burden, his or her capacity, his or her equal treatment. Res publica? Not so much.

Which is why I find the application for a judicial review so interesting, that has been sent to Karlsruhe lately by the 7th Senate of the Lower Saxony Fiscal Court on the issue of the flat rate withholding tax (Abgeltungssteuer).

Abgeltungssteuer. Sweet Jesus. Your mind is already beginning to wander, I suppose, and I can’t blame you. A little discipline, if you please, because this is really exciting stuff: This is about a law from the first Merkel government, enacted in 2009, according to which income upon investments (Kapitaleinkünfte) is taxable at a flat rate of 25%, even if you actually owe a much higher tax rate. Unlike, for example, wages and business income, which are taxed progressively. This is of course very unfair, but – according to the justification at the time – necessary for no other reasons than tax justice!

Listen to Peer Steinbrück, the Social Democratic Federal Minister of Finance at the time, before the plenary of the German Bundestag:

It is not readily understandable that investment income – which is not earned through effort – should be taxed uniformly at 25 per cent, while those who work with their heads and hands have to deal with marginal tax rates and with an average tax burden that is far higher. This objection is valid. Only, one has to face the reality. The reality is that the Federal Republic of Germany has to face an outflow of capital amounting to billions of euros every year. This means that this capital is not invested in Germany and therefore does not lead to interest, dividends or capital income of any kind, which would be taxed here in Germany, but it is futsch.

(Dr. Peter Ramsauer [CDU/CSU]: Futsch!)

You know that against this background I have always considered it logical to say: It is better to have 25 per cent on X instead of 42 per cent on nix (nothing). The calculation is as simple as that.

The calculation is as simple as that: futsch! Of course, the calculation is not that simple, because why would someone who pays nix in taxes without any meaningful risk of being discovered and punished suddenly want to fork over a quarter just because the Minister of Finance is ready to meet him halfway. The suitability of this unequal treatment to achieve its alleged aim is already highly doubtful. Its necessity as well: Since 2009, things have moved on when it comes to the risk of being discovered and punished. Tax administrations communicate a lot better now, internationally. Even if one assumes an incentive effect for tax honesty – by now there would probably be less inequitable ways to convince investors of the necessity to declare their income abroad.


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We can therefore look forward to a clarification before the Second Senate in Karlsruhe. This may also close a circle that began more than 30 years ago. In June 1991, three quarters of a year after the German reunification, when Paul Kirchhof was tender 48 years old, the Second Senate of the Federal Constitutional Court handed down a judgement on a very similar question: is it a violation of the principle of equality if one has to pay income tax on one’s investment income de facto only if one is stupid enough to declare it?

Those must have been wild times in Germany in the 1980s. Barely every second D-mark that the good German citizens received from their fixed-interest securities at that time found its way into their tax returns, and apparently everyone knew it! That’s just the way it was. Futsch!

A tax official from Baden-Württemberg was unprepared to accept this and sued against his own tax assessment, but unsuccessfully: correct, the tax courts told him, it was terribly unfair that he had to pay tax on his interest income just because he had declared it, but there is no such thing as equal treatment in injustice. Enter the Federal Constitutional Court: that is too simple.

Taxes, according to the Federal Constitutional Court, are what everyone has to pay, regardless of what the money is used for and what one gets in return. Only because and insofar as the burdens are distributed equally can one be expected to pay at all. Imposing the costs of the state and its actions on the non-privileged and exempting the (not least through state action) privileged, as in feudal times – we don’t do that, that’s what we have a constitution for in the first place, isn’t it? Just as the tax debtor is obliged to pay taxes, the tax creditor is obliged to collect them. What he mustn’t do is to say: Fine, don’t pay, no big deal. This is about civic equality. This is about the res publica.

The Abgeltungssteuer is not about botched tax collection, but – allegedly at least – about the opposite. (Ironically, something like it is even hinted at obiter dictum by the BVerfG as a possible solution). Nevertheless, it is a problem of equality. The decision what to tax and how much is for the legislator to make. But if it decides, for example, to subject investment income to income tax, then it must remain consistent in doing so.

The week on Verfassungsblog

In recent years, numerous Russian oligarchs have bought so-called “golden passports” and thus obtained the citizenship of an EU member state as well as EU citizenship. Last week, the EU Commission called on the respective member states to revoke the citizenship of Russian and Belarusian oligarchs. LORIN WAGNER looks at what this means for the principle of mutual trust between member states.

The war in Ukraine confronts the European Union with the question of mythical narratives that drive it and hold it together. TOMASZ TADEUSZ KONCEWICZ believes that entirely new answers are possible.

Much will depend on France and the outcome of the upcoming presidential elections. The incumbent Emmanuel Macron recently presented his programme. In particular, he reiterated his desire for efficiency and a “strong executive”. ELIE TASSEL-MAURIZI is not convinced and criticises Macron’s lack of patience with the democratic process.

In Brazil, a working group is studying how the current system of government can be transformed into a semi-presidential one. The hope: more political stability. FELIPE OLIVEIRA DE SOUSA explains why this assumption is misguided and what should be done instead.

Our latest online symposium on artificial intelligence and the numerous new challenges for the rule of law, organised together with Democracy Reporting International, started this week with a wealth of exciting texts. MICHAEL MEYER-RESENDE and MARLENE STRAUB open the debate and provide an overview of the contributions by JACOB LIVINGSTON SLOSSER, HENRIK PALMER OLSEN and THOMAS HILDEBRANDT, LAURENCE DIVER and PAULINE MCBRIDE, SHMYLA KHAN, SARAH ESKENS, STANLEY GREENSTEIN, PERRY KELLER and ARCHIE DRAKE, PADDY LEERSSEN, JENNIFER COBBE and JAT SINGH, CATELIJNE MULLER, CHRISTOFER TALVITIE and NOAH SCHÖPPL, and PAUL NEMITZ and EIKE GRÄF.


Finally, with contributions from LI-ANN THIO and ILYA SOMIN, our 9/11 Symposium on Human Dignity and Liberal Core Values concluded this week. And MAXIM BÖNNEMANN and LINA-MARIE DÜCK concluded the debate on climate litigation in the Global South.

I cannot raise taxes, unfortunately, but may I, in the name of the res publica, ask you to contribute to the upkeep of Verfassungsblog voluntarily? Here you will find several possibilities. Thank you very much!

All the best and see you next week,

Max Steinbeis

SUGGESTED CITATION  Steinbeis, Maximilian: The Public Thing, VerfBlog, 2022/4/01, https://verfassungsblog.de/the-public-thing/, DOI: 10.17176/20220402-011302-0.

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