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23. March 2020 | Video: When will the new wealth tax come?

20. July 2021 | Wealth tax in Germany – Wealth areas Evaluation & Taxation

10. September 2021 | Which wealth tax comes after the 2021 election in Germany?

17. September 2021 | Family Foundation in Liechtenstein as a rescue from property tax?

22. September 2021 | Capital levy to Corona – in what form could it come? (this contribution)

According to the will of the left and the Greens, there should be a corona asset levy in Germany after the election in 2021. High-net-worth individuals and corporations should pay up to 30% of their assets as a one-off corona asset levy. However, there is some ambiguity in this project. Therefore, we suspect that the Corona asset levy may follow the pattern according to which a property levy for burden-sharing in Germany was already levied in 1952. Alternatively, the inheritance tax can also be considered as a model for a potential corona asset levy. In any case, we assume that the Corona asset levy will determine the market value of assets as a basis for assessment. For many companies, especially those with high profits, this would be an enormous burden. Therefore, we speculate that the Corona asset levy could be combined with a long-term deferral. With a move abroad, this levy should hardly be avoidable.

In the current Bundestag election campaign, the left brings in addition to a wealth tax also a Corona-asset levy into discussion. The Greens also support a Corona asset levy in principle. Therefore, the probability is relatively high that the future federal government could actually introduce such a corona asset levy. After all, the Corona pandemic has created huge gaps both in public funds and in many private households, while at the same time there have been huge profits on the stock exchanges.

However, the question must be clarified whether such a corona asset levy can be in line with the Basic Law at all. Even if this is the case, implementation at legislative level and in practice remains open. In particular, many technical details come to the fore. But the effects of a corona asset levy should also be assessed here. For the latter reason in particular, other parties represented in the Bundestag are very sceptical about the introduction of a corona asset levy. The fact that electoral policy calculations are also present on both sides certainly does not need any special mention here.

Based on this current discussion on the imposition of a corona-related property levy, we would now like to look both a little into the past and speculate on how a potential property levy could actually be designed. We mainly deal with the question of practical implementation. On the other hand, the potential economic impact of a Corona asset levy is only an ancillary aspect.

Unlike a recurring tax, a property levy is a one-time levy. In both cases, certain conditions must be met in order to lead to a survey. The actual reasons for both types of taxes can of course be manifold. Even the general central point for levies, namely the securing of the financing of the state budget, may be in the background.

So you can see two motives in the proposed Corona asset levy. On the one hand, the property levy is to finance at least part of the enormous costs that the Corona pandemic also caused in the Federal Republic’s budget. On the other hand, large parts of the population, which also suffered massive financial losses, are to receive indirect compensation from those who benefited from the pandemic.

Whoever now believes that the Corona asset levy is a completely new invention, with which the Left Party and the Greens fight, is mistaken. In fact, right at the beginning of our republic there was a property levy. That was 1952. At that time, the CDU/CSU parliamentary group, followed by the SPD, was the most strongly represented party forces in the still young Bundestag. Therefore, it may be a little surprising that at that time it was mainly these two groups that adopted the Burden Sharing Act (LAG).

Sure, circumstances were different then than they are today. At that time it was about compensating the many war victims among the German population. Nowadays, it is fair to say that the Corona pandemic is the greatest acute challenge that Germany has had to overcome since those days. But the situation, especially the starting point, in the here and now, is completely different. Therefore, the question of the conformity of a Corona asset levy with the Basic Law is quite permissible.

In principle, this question can be answered in the affirmative. After all, the load compensation law has been in place for many decades. Yes, it still has its effect today and for many years to come. It is assumed that the last benefits of the Federal Republic, which are due to the burden compensation law, will not be paid out until 2035.

In the meantime, the burden compensation law also came to the fore in the context of the reunification of Germany. If, therefore, there had been constitutional concerns in principle about such a levy on assets, this would certainly have led to repercussions, which one would still hear argumentatively today.

However, we also have to consider another aspect. It concerns the scope of a potential corona asset levy. The left demands that wealthy people pay up to 30% of their assets as a levy. In combination with all other taxes, in particular income taxes, this can be disproportionately high, so that constitutional law has so far basically only heard the argument that this actually comes close to a state expropriation.

In order to provide a classification of this magnitude, we refer to the amount of the levy that was applied in the context of the 1952 burden compensation. At that time, the percentage was as much as 50% of the assets. Assets were affected from a value of about DM 150,000, bearing in mind that due to the inflation since that time, this value would be significantly higher today. Nevertheless, the load compensation law was still valid.

So in order to understand why such a drastic property levy was constitutional, one must also shed some light on the details of its collection. At that time, the legislature granted a quarterly payment over an entire term of 30 years. Although this was also associated with interest, the actual burden was far below the average earnings value that the assets could earn in the meantime.

Now let’s speculate a bit fact-based what a potential corona asset levy might look like in the future. For this purpose, we are guided on the one hand by the historical property levy of 1952. On the other hand, we also include the substitute inheritance tax in our considerations. Because in both cases it is the collection of a levy in the broader sense, in which the amount to be paid could or can be hours.

The deferral of the amount charged could take place over a similar period of time as in the case of the property tax for burden compensation or the inheritance tax. Therefore, if the deferral period should be 30 years and the interest rates are soon to adapt to the reality on the financial markets, then the real burden of the Corona asset levy should seem reasonable at first glance. Even if the percentage should actually be 30%, the annual rate should remain relatively low. Thus, one can assume that there is still enough capital left for further asset growth. Although this reduces the increase in assets, the expected returns should continue to significantly exceed the level of the levies.

The only question is whether one can count on so much concession from Father State. Finally, unlike the burden-sharing levy, the Corona asset levy is not intended to ensure long-term financing of the necessary expenses, but to cover the acute costs of the pandemic and to require a social redistribution of assets.

But even the property levy of 1952 was accompanied by an innovation. At that time, the legislature converted the Federal Republic’s entitlement to the total amount of the levies into Pfandbriefe. Since the levies at that time were largely linked to a land charge entry in the land register, the mortgage bonds were linked to collateral. This allowed them to trade on the capital market.

In fact, the mortgage bonds were a very valued security for a long time. But this was probably due in particular to the relatively advantageous interest rate. Exactly this point should, however, almost exclude the transferability of this consideration into the present day. Because at today’s interest rates, mortgage bonds would rather lose value than gain. This basically excludes a new version of this approach.

In addition to this aspect of introducing a corona asset levy, there is also another one that should be considered seriously. A corona asset levy, like a property tax, requires a determination of the tax base. However, this involves an enormous bureaucratic effort, namely the determination procedure for determining unit values. According to the law, this would require all assets in Germany to be valued at six-year intervals (§ 21 BewG). However, in the past, the effort involved in this main finding was so high that the determination procedure, since it was last carried out in 1964, was rather replaced by hardly realistic value estimates. Indirectly, however, this led to the suspension of the collection of the property tax, because it was considered unconstitutional on this basis.

However, if one wanted to carry out a new main assessment procedure with the officials and employees currently employed in the financial administration, many other ongoing processes were certainly neglected for a relatively long time. This trades a supposed advantage against a safe disadvantage. Whether this can be in the sense of the citizens in general or even the federal government, however, one may doubt.

However, if you also levy a property tax, then the effort with the determination procedure would be rather worthwhile. Both levies are based on the unit values determined in the main determination procedure. However, this would not take into account the fact that the burdensome assessment procedure for further collection of property tax would basically have to be maintained in the future. Otherwise, the finding of an unconstitutionality would again threaten.

Finally, let’s take a brief look at the economic consequences as well as the political implications of a corona asset levy. If the future federal government should actually introduce it in a form similar to that described here, then we can address two points in particular.

5.4.1. Political consequences of a Corona asset levy

On the one hand, a possible deferral is likely to lead to a sparse flow of federal financial revenues through a Corona asset levy. Thus, it would not have a major impact on the acute fiscal situation.

But this would also leave the amount of funding rather small, with which the future federal government could invest money for economic recovery, for example in the form of investments in the in many cases ailing, but at least expandable infrastructure. Such work would therefore take place rather slowly. From the point of view of a new government coalition that needs success to justify its new course before the voters, this is likely to be a disaster rather than a success.

5.4.2. Economic impact of a Corona asset levy

On the other hand, most wealthy people are likely to perceive a corona levy as an imposition. This is particularly due to the fact that, from their perspective, about a third of their assets are claimed, and this would seem to them in most cases as if the Corona asset levy were due in one fell swoop. The possibility of a deferral should only feel a minority as a consolation.

Furthermore, moving abroad offers no remedy. As soon as the Treasury collects the Corona asset tax, it continues to exist vis-à-vis the taxpayers concerned. It therefore remains completely independent of the future residence of the persons assessed in Germany or abroad.

But companies and entrepreneurs are also not very happy about a potential corona levy. Especially for companies that are currently making high profits, the company valuation leads to astronomical amounts in the simplified income value method, which is based on the amount of profit. As a result, innovative startups in particular could be affected in their development. High-net-worth companies that currently record low profits or have multiple options to minimise their profit at the time of valuation would benefit from this. But this would be an unfair advantage, which would have to be legally excluded before a corona levy is imposed. Whether this can succeed remains questionable.

So what is needed above all in order to enforce a corona asset levy politically is a rational, adapted to reality, freed from any ideology, but above all also the broad population convincing approach. But this seems almost impossible in today’s diverging society.