Montag, 18. Mai 2009

German Income Tax

Germans like to moan that income tax rates are too high. And considering a marginal rate of 44.3 % (42%+Soli) for "higher incomes" and 47.5 % (45%+Soli) for "really high incomes", this sounds plausible.

However, the amazing thing is:

The average tax-rate on labor income is only 10.7 % (as of 2006):

Sum of wages: 1,150 bn €
(Source: Destatis)

Sum of income tax deducted from wages: 122.6 bn €
(Source: Bundesfinanzministerium)

So either most employees don't earn very much, or they deduct lots of stuff from their taxable income...

In any case, the "critical taxable income" for an average tax-rate of 10.7 % is a bit less than 16,000 €. Per year, for a single person with no dependents. Taking into account normal deductions (social security, Werbungspauschbetrag), this equals roughly 21,000 € yearly gross. Or 42,000 € for a married couple with no kids.

I was surprised to learn that tax deductions for kids play a large role: In 2006, total income tax gross of Kindergeld was actually 158.1 bn € (13.7 % of total wages), and 34.9 bn € was deducted for Kindergeld. In other words, the average income tax bill on labor income is reduced by 22 % due to Kindergeld!

(Previous post on change in average tax-rates over last 20 years)

(P.S.: This post was inspired by a vaguely related post on the FDP's tax reform proposal at Der Spiegelfechter)


  1. An afterthought: The "sum of wages" includes employer contributions to social security. If, as is more customary, the tax rate is calculated based on the gross salary, then the average tax-rate rises to around 12.0 - 12.5 %.

  2. Very interesting!

    Just one slight point: income tax also has to be paid on capital income, rents, etc., so the average tax rate is even lower than you showed

  3. The data I used is the portion of the income tax deducted from wages (i.e. the "Lohnsteuer"). Other sources of income tax (e.g. capital income and rents) are excluded.