You might think taxes in Germany are high - but they’re not as bad as they used to be. According to a new study, the average tax burden in Germany has decreased significantly over the past few decades. 

Tax rate in Germany has fallen significantly since 1986

The tax burden on residents of Germany has fallen significantly since the 1980s, according to a new study by the Munich Ifo Institute, seen by the Handelsblatt newspaper. The researchers analysed how Germany’s tax burden has developed over the past 35 years, and concluded that the “average burden on earned income through income tax and the solidarity surcharge has decreased significantly.” 

Their calculations showed that an unmarried person who earned the equivalent of 30.000 euros per year 35 years ago would have given 36,1 percent of their salary to the state in the form of taxes and contributions to social security. In 2011, that figure was 34,7 percent, and in 2021 it fell to 32 percent.

The same is true of high earners: an unmarried person with an annual income of 70.000 euros would have paid 46,9 percent of it to the tax authorities in 1986. By 2021, that burden had fallen to 41 percent. For an annual income of 100.000 euros, the burden has fallen from 48,7 to 43,4 percent in the last 35 years. 

According to the Ifo Institute, the trend is mainly the result of tax reforms and the regular increase of the basic tax-free allowance. The average tax rate for unmarried people with an annual income of 100.000 euros has fallen from 39,3 percent in 1986 to 29,9 percent today, while the rate for a family with an annual income of 200.000 euros has fallen from 37,3 to 26,9 percent. This relief has been slightly offset by higher social contributions. 

Ifo: Study not free ticket to raise taxes

Ifo researcher Andreas Peichl said that the study results did not give the federal government a free ticket to increase taxes. Instead, he said, “it is time for a fundamental reform of the tax and contribution system so that work and performance are more worthwhile and participation in the labour market increases.” 

The president of Ifo, Clemens Fuest, added that it would make sense to completely abolish the solidarity surcharge - which was partially abolished at the beginning of 2021 - and instead increase the tax rate for top earners. He added that the tax rate on corporation profits should also be reduced.