Spousal splitting has been under criticism in Germany for a long time. On the one hand, it stands for a cementation of gender-specific distribution of tasks within marriages. In particular, the acquisition of income in our society is still very one-sidedly assigned to husbands. On the other hand, spousal splitting is supposed to promote families financially, but childless marriages also benefit from the tax subsidy. These can amount to up to EUR 15,000 in a year, using households with large rather than small incomes. The state thus loses many billions of euros in tax revenue every year – another point of criticism.

1st Criticism of Spousal Splitting – Introduction

Again and again one learns from the media that parties express criticism of spouse splitting. Of course, there are only certain parties who treat spousal splitting with skepticism. Others, on the other hand, consider the spouse splitting to be justified and defend it. In fact, spousal splitting has survived many attempts to fix it. Since the early days of the Federal Republic of Germany, it has been an integral part of German income tax law. But other states also know such a regulation in their tax laws.

But what exactly is spousal splitting and what triggers criticism?

2. How did spousal splitting come into German tax law?

Spousal splitting is a special exception that was originally intended to apply to income taxation of spouses. In the meantime, however, it is also permitted for civil partnerships. Instead of an individual investment of both spouses/life partners, they can tax their total income together. To do this, you divide the total income between both, calculate the income tax on this half of the total income and then double the amount in a third step. After all, this is the income tax that applies to both partners together. In other words, the Treasury treats spouses and life partners as a single tax subject.

Spousal splitting is almost as old as our republic. It was introduced in 1958 and was intended to support families financially. At that time, however, there was a completely different understanding of society about the role of men and women in a family. And this distribution of gender roles, in which the husband earned money as the only family member, while the wife managed the household and at best earned a little extra (if the husband actually allowed it, because this was only possible with his consent at that time), was groundbreaking for the design of the spouse splitting. And yes, on this patriarchal, some may say antiquated income tax law, our current taxation is also based. This alone could be reason enough for many people in our society today to criticize spousal splitting. That later also civil partnerships could slip under this regulation, was probably rather due to a forced recognition of modern life realities of broad populations, but hardly compatible with the original intention of the legislature in 1958.

Are there spousal splitting also abroad?

Spousal splitting is not a purely German invention. Among our neighbours, Luxembourg, Poland and Switzerland, there are three countries that have introduced a similar regime. The spouse splitting should also lead to financial support for families. In addition, there are very similar regulations in the tax law of the Isle of Man, Malta and the USA. Apart from that, other states are familiar with similar tax breaks, but they actually relate to families rather than married couples or life partners. For example, in France and Portugal. The design of the legal norms differs in part considerably from that of the German spouse splitting. Because there, the number of children in the household plays an important role in the calculation of income tax.

4. How Does Spousal Splitting Affect Tax?

To understand the tax benefits of spousal splitting, it is important to remember that the spouse with the higher income is always taxed more favorably than a single taxable person with the same income. Conversely, the spouse with the lower income is worse off than a single taxable person of equal income by the spouse splitting. Now one may assume that these advantages and disadvantages are fiscally balanced within a marriage or civil partnership, but this is a fallacy.

Suppose a spouse, in reality still mostly the husband, earns the only money. Then the basic allowance of the other spouse alone has a positive effect on the combined income. If both couples chose the individual tax instead, the basic allowance would not have a tax-reducing effect on the incomeless person.

In addition, the higher the income difference between the two partners, one of the two ideally lacks any income, the greater the tax advantage of the spouse splitting. The tax advantage compared to a separate assessment or compared to single taxpayers can amount to up to EUR 15,000. And that every year! The state deliberately loses many billions of euros in tax revenue every year. This alone caused criticism of the spouse splitting. In times of increased budget requirements, a tax subsidy that is hardly traceable.

Criticism of Spousal Splitting – an Overview

In medias res: A major criticism of spousal splitting is that it actually only promotes marriages. Families thus promote this type of predisposition at best indirectly. Thus, the very purpose of the promotions is doubted, especially nowadays, as more and more marriages remain childless. Single parents, on the other hand, suffer because they are excluded from the benefits of spousal splitting, even though they are caring for children. Apart from the lack of a tax subsidy, their situation is quite comparable to that of a real family. Basically, spouse splitting only promotes where there is a clear income difference.

For example, the tax advantage from spousal splitting is significantly higher for married couples with increasing income than for partnerships with low income. This basically contradicts the actual purpose of spousal splitting, because low-income families hardly receive financial support. In order to receive an advantage from the spousal splitting, the total income must exceed at least twice the amount of the basic allowance. If one realistically adds employee lump sums and other tax reductions (e.g. higher advertising costs, special expenses, exceptional burdens), then even at the level of a middle-class family only minor relief is expected. The greatest favor is the spouse splitting so actually households that do not need any financial support.

Another point for which the spouse splitting is in the criticism is that the lower-earning partner bears the risk that possible wage replacement benefits and pensions are lower because they are based on net income. Since the net income also depends on the wage tax bracket, and one receives the greatest advantage in the case of spouse splitting, if the wage tax bracket of the high earner is particularly favorable, this means for the lower earning partner an unfavorable wage tax bracket and thus a significantly reduced net income by wage tax in the case of possible wage replacement benefits.

Criticism of Spousal Splitting – Conclusion

Criticism of spousal splitting is often related to the unequal treatment of man and woman established in reality. Because still uses the spouse splitting mainly men – and by a large distance. Ultimately, however, each couple can decide for themselves how they want to apply the spouse splitting.

Another criticism is that spousal splitting does not provide relief for single-parent taxpayers. Now one may question whether single parents may be constitutionally equated with families. But if you look at it honestly, you should say yes. This would result in unconstitutional unequal treatment.