The SPD’s tax extravaganza is entering its next round. At the end of November, the coalition committee of the two governing parties, the CDU/CSU and SPD, agreed on a new “review mandate” for the so-called pension commission, which provides for the inclusion of “other types of income” in social security. This is nothing more than a bureaucratic euphemism for what it really means: a direct attack on the investment income of millions of Germans.
For Chancellor Friedrich Merz (CDU), this would be yet another U-turn, because just about a year ago, he described this very proposal, which was put forward by the then Federal Minister of Economics Robert Habek (Greens), as a “crazy idea” and “nonsense” and promised his voters that with him as chancellor, such a thing would never be implemented.
Times change faster than coalitions in Berlin. Campaign promises are worthless. We have calculated what impact this idea would have on every saver and investor.
How investment income has been taxed to date
To understand the scope of the planned reform, it is first necessary to understand how capital gains are currently taxed in Germany. Since 2009, Germany has had a flat-rate withholding tax that applies to all capital gains, whether interest, dividends, capital gains, or other income. The flat-rate withholding tax is 25%.
Added to this is the solidarity surcharge, a “temporary” tax that was introduced in 1995 to finance German reunification and still exists today, even though its original purpose has long since been fulfilled. The solidarity surcharge is not levied on the capital gains themselves, but on the 25% flat-rate withholding tax. This may sound abstract, but in concrete terms it means that 5.5% is added to the 25% withholding tax.
Members of the church still pay church tax in almost all federal states. Only in Bremen and Schleswig-Holstein is it not levied. Depending on the federal state, church tax amounts to 8 to 9% and, like the solidarity surcharge, is offset against the withholding tax. Example: Anyone who lives in Bavaria or Baden-Württemberg and belongs to a church will have a total tax burden of around 26.375% on their capital gains. Anyone who lives in most other federal states pays around 28.625%.
There is an annual allowance of €1,000 per person (€2,000 for married couples), which is deducted as a lump sum without further ado, additional allowances, or the possibility of claiming any income-related expenses. Everything is (actually) covered.
What exactly is the government planning?
In addition to the taxes that are actually paid, the coalition committee paper dated November 26, 2025 now provides for these “other types of income” to be included in social security. This is deliberately vague in order to avoid opposition and perhaps leave a kind of back door open for later. But what is meant by this is obvious: investment income and rental income.
Although the details have not yet been finalized, economic observers and experts point to several possible scenarios. The most likely scenario would be a flat-rate levy of social security contributions on all investment income, similar to wages, where social security contributions are usually split equally between the employer and the employee. This would mean that pension insurance, health insurance, long-term care insurance, and unemployment insurance would all claim a share of investment income, which together would result in a massive additional tax burden.
Another scenario would be a graduated solution with allowances for small savers. Perhaps the first €5,000 or €10,000 of investment income per year would be exempt, and social security contributions would apply above that amount. This would primarily affect people who live frugally and have built up some wealth. It would particularly affect middle-class and small business owners who are trying to secure their retirement through savings.
A third scenario would be to limit the tax to “high-yield” investments. Only profits from stock purchases would be subject to social security contributions, but not interest or rental income. At first glance, this sounds fairer, but in terms of economic policy it is even worse because it discriminates against stock owners and penalizes investments in German companies. The most perverse thing about this plan is that it has long been thought through bureaucratically. Tax authorities have long since calculated scenarios.
The pension commission will present a detailed plan. The details will then be discussed. And in the end, exactly what always happens will happen: there will be a middle-of-the-road solution that doesn’t really satisfy anyone, but is simply accepted.
Detailed calculation examples: Who is really affected?
To understand the extent of this planned tax increase, we need to look at specific figures. Let’s start with a typical average earner, one of the millions of people who work in Germany and are trying to build a life for themselves. Let’s take a 45-year-old man with a child who works in the insurance industry for €50,000, is married, has a wife with a part-time income of €25,000, and thus has a total gross household income of €75,000. The man has consistently saved €500 per month over many years, which amounts to €6,000 per year. After 20 years of saving, he has set aside a total of €120,000 without any returns or compound interest.
This €120,000 is invested in ETFs on the DAX and in German blue chips, plus a small amount in bond funds. The average return on this investment over the years is around 2.5% per year. Historically speaking, this is a fairly modest return when you consider that the stock market yields around 7 to 8% in the long term, but our fictional saver is cautious and has a large portion in less volatile investments, which is why we are assuming 2.5%.
For the next year, the saver can therefore expect capital gains of approximately €3,000. After the saver’s allowance of €2,000, €1,000 in capital gains remain taxable. These are taxed at the current flat rate of 26.375% (excluding church tax). The tax burden is €264. That sounds manageable. The saver has earned €3,000 and pays €264 in tax. That is 8.8% of the income. The remaining €2,736 can be reinvested, and the assets continue to grow.
.Tripling of levies possible
Now comes the planned change: Let’s assume that the government introduces the following rule: Investment income is treated as earned income and is subject to pension insurance at a rate of 18.6%. This is the current combined pension contribution rate for employees and employers. In addition, there is health insurance at around 17.05% (this rate varies depending on the health insurance company), nursing care insurance at 3.6%, and unemployment insurance at around 2.6%. Together, these amount to 41.85% in social security contributions.
Now let’s do the math: Our fictional saver again has €3,000 in capital gains. The saver’s allowance remains unchanged, so €2,000 remains tax-free. €1,000 is subject to the new regulation. Social security contributions of 41.85% are now levied on this €1,000. That’s an additional €418.50. Added to this is the above tax burden of €264. In total, the saver now pays €682.50 in taxes and contributions on the €1,000 of taxable investment income. This represents a tax burden of 68.3% on taxable income or 22.75% on all investment income generated.
Previously, he paid €264, but now he owes €682.50. This represents an increase in tax liability of almost 158%, or nearly threefold. Instead of €2,736 that can be reinvested, he now has only €2,053.50.
If, on the other hand, one assumes that only the employee’s share of income tax would have to be paid on capital gains, social security contributions would be reduced to 21.525% up to the contribution assessment ceiling. Childless singles would then pay 9.3% for pension insurance, 8.525% for health insurance including an additional contribution, 2.4% for long-term care insurance (1.8% + 0.6%), and 1.3% for unemployment insurance.
Here are some sample calculations:
| Gross salary | Assets | Interest | Income | Taxes | Social security contributions (employer + employee) | Social secutiry contributions (half) | Total burden |
|---|---|---|---|---|---|---|---|
| 36,000 euros | 20,000 euros | 2,5 % | 500 euros | 0 euros | 0 euros | 0 euros | 0 % |
| 36,000 euros | 20,000 euros | 7,0 % | 1,400 euros | 105.50 euros | 169.80 euros | 86.10 euros | 13,7 – 19,7 % |
| 36,000 euros | 50,000 euros | 2,5 % | 1,250 euros | 65.94 euros | 106.13 euros | 53.81 euros | 9,6 – 13,8 % |
| 36,000 euros | 50,000 euros | 7,0 % | 3,500 euros | 659.38 euros | 1,061.25 euros | 538.13 euros | 33,2 – 49,2 % |
| 48,000 euros | 50,000 euros | 2,5 % | 1,250 euros | 65.94 euros | 106.13 euros | 53.81 euros | 9,6 – 13,8 % |
| 48,000 euros | 50,000 euros | 7,0 % | 3,500 euros | 659.38 euros | 1,061.25 euros | 538.13 euros | 34,2 – 49,2 % |
| 48,000 euros | 100,000 euros | 2,5 % | 2,500 euros | 395.63 euros | 636.75 euros | 322.88 euros | 28,7 – 41,3 % |
| 48,000 euros | 100,000 euros | 7,0 % | 7,000 euros | 1,582.50 euros | 2,547.00 euros | 1,291.50 euros | 41,1 – 58,9 % |
| 75,000 euros | 150,000 euros | 2,5 % | 3,750 euros | 725.31 euros | 698.50 euros | 357.50 euros | 28,9 – 37,9 % |
| 75,000 euros | 150,000 euros | 7,0 % | 10,500 euros | 2,505.63 euros | 2,413.00 euros | 1,235.00 euros | 34,2 – 49,2 % |
| 75,000 euros | 350,000 euros | 2,5 % | 8,750 euros | 2,044.06 euros | 1,968.50 euros | 1,007.50 euros | 34,9 – 45,9 |
| 75,000 euros | 350,000 euros | 7,0 % | 24,500 euros | 6,198.13 euros | 5,969.00 euros | 3,055.00 euros | 37,8 – 49,7 % |
| 100,000 euros | 250,000 euros | 2,5 % | 6,250 euros | 1,384.29 euros | 220.50 euros | 126,00 euros | 24,2 – 25,7 % |
| 100,000 euros | 250,000 euros | 7,0 % | 17,500 euros | 4,351.88 euros | 220.50 euros | 126.00 euros | 25,6 – 26,13 % |
| 100,000 euros | 500,000 euros | 2,5 % | 12,500 euros | 3,033.13 euros | 220.50 euros | 126.00 euros | 25,3 – 26,1 % |
| 100,000 euros | 500,000 euros | 7,0 % | 35,000 euros | 8,967.50 euros | 220.50 euros | 126.00 euros | 26,0 – 26,3 % |
For incomes above €69,750, contributions to health insurance and long-term care insurance will not increase further from the next tax year onwards, and at €101,400, contributions to pension and unemployment insurance will also be capped. In other words, those who earn well may already have paid their share of social security contributions and will not have to pay any more. The result: the additional social security contributions would primarily burden the middle class, where contributions would nearly double, while low-income earners with little wealth often have no capital gains that exceed the allowance. To be fairer, both the allowances and the contribution assessment ceilings would have to be significantly increased, or the latter even abolished altogether.
Let’s extrapolate this over 20 years: if our fictional saver does not change their savings rate and continues to save €6,000 per year, the new tax burden means that they will receive a total of €8,180 less in capital gains after tax than before. Taking into account the effect of compound interest, they will lose out on a considerable amount of return.
It is a burden that will be eroded over the years by the lack of compound interest.
The principle: double taxation through the back door
The system logic: Workers and employees pay social security contributions in addition to income tax. Investors do not. Politicians consider this to be “unfair” – although it is not unfair, but rather reflects a historical distinction between earned income and investment income.
Now, this very distinction is to be blurred: in future, capital gains will also be subject to social security contributions – in addition to the existing withholding tax. This would be double taxation in its purest form. If you start calculating dividends at the company level, you already arrive at a tax burden that quickly exceeds 50% and is thus higher than almost any earned income. The state takes around half of every euro earned, only to levy another tax on top of the tax later on. It is becoming increasingly difficult to make independent provisions for old age, even though state pension systems are increasingly failing.
The planned social security contributions on capital gains are not an attack on the rich, as some would certainly like to believe. They are an attack on the middle class. An attack on those people who try to help themselves through hard work and thrift. They are an attack on the last remnants of property rights in Germany.
Friedrich Merz and his government lied. They made election promises they had no intention of keeping. And now that they are in power, their true goals are becoming clear: not less government, but more control. Not economic freedom, but greater redistribution. Merz promised freedom. Merz is delivering control. This has almost become a sad German tradition…
