As of January 1, 2023, the top tax rate in Germany will only apply from an annual income of 62,810 euros due to a further increase in the basic exemption amount – at which point around 42% income tax will have to be paid to the state. Although Germany is considered a high-tax country by OECD standards and private investors in particular are confronted with sometimes insane taxation, politicians are constantly calling for higher taxes for high earners or even a wealth tax.
But anyone who believes that a tax rate of 42% (or 45% with a wealth tax) only affects high earners is seriously mistaken. In fact, the tax and contribution burden for every employee in Germany is significantly higher.
Consumption taxes increase the rate
The reason for this is the numerous consumption taxes in everyday life. They cause people to pay even more money to the state and the community every day from their already taxed income. In purely arithmetical terms, the income tax burden ratio for an average employee household was 53% in 2022, according to the German Taxpayer Institute (DSi).
This meant that taxpayers were able to keep just 47 cents of every euro earned. Compared to the previous year, this is an additional burden of 0.1 percentage points, and even 0.8 percentage points more compared to 2020.
The main reason given for the further increase in tax revenue is the higher inflation rate. Consumer prices, which have risen sharply in some cases, led to a higher sales tax burden. In total, social security contributions accounted for 31.5 cents and taxes for 21.5 cents. Wage and income tax accounted for the largest share at 11.9 cents, followed by sales tax at 4.8 cents and energy taxes including the CO2 levy at 1.0 cent. Other taxes such as property tax, motor vehicle tax, insurance tax and coffee tax average 3.3 cents.
If politicians – above all FDP Finance Minister Christian Lindner – had not taken countermeasures, the increase in the tax burden could have been even higher. These include the billion-euro, debt-financed gasoline rebate, the energy price flat rate and the abolition of the EEG surcharge. This year, cold progression is also to be countered by higher basic tax allowances.
The more one consumes, the higher the levies
In fact, everyone has a very personal income tax burden due to their consumption and income. For example, a single person earning 3,000 euros gross per month, which is less than the national average, consumes around 40 liters of fuel, 800 kWh of gas for heating and hot water, 100 kWh of electricity, half a kilogram of coffee and four liters of beer, does not smoke, pays around 150 euros a year in vehicle tax and spends 960 euros on private insurance and around 200 euros on food and technology, has a personal income tax rate of 53.5%, which is even higher than the rate given above. This leaves the employee with only 46.5 cents of every euro earned.
You can find out your own personal income tax rate directly on the website of the German Taxpayers’ Association (Bund für Steuerzahler Deutschland e.V.).
