How good is Germany to its super rich?

Germany just got a new billionaire.  Financier and TV celebrity Carsten Maschmeyer landed on Forbes' billionaire list Thursday for the first time with an estimated net worth of $1.1 billion (€0.9 billion). "I myself am an example of how it's possible to reach the top from the most restricted and poorest of circumstances," he said in an online seminar in April on how to become rich, referring to his childhood living with his mother who had a small income from a secretarial job. "Being rich consists of many small steps and a ton of discipline and perseverance." 

The ranks of millionaires and billionaires in Germany have indeed been swelling in recent years. The German Federal Statistical Office announced this week that the number of German taxpayers with an annual income over €1 million rose by 1,900 to 24,700 citing the most recent figures from 2017. 

When property, business capital, savings, and investments are also taken into account, the numbers jump: Well over 2 million Germans have a net worth of $1 million according to Credit Suisse's 2020 Global Wealth Report. It also ranked Germany third globally in terms of individuals worth $50 million or more. And according to the Forbes 2021 Billionaire's List, Germany is number four in the world for its billionaire population of 136. 

The difference between the income and wealth-based numbers suggests at the adage "wealth begets wealth": those who have tend to then have more, or even most. Currently, the top 10% in Germany owns two-thirds of its assets. 

With growing inequality in Germany making headlines and politicians outlying finance reform plans ahead of a September national election, a question looms: Is Germany a "rich-friendly" country, with policies that favor the concentration of wealth at the very upper end? 

What is 'rich'? 

Maximilian Stockhausen, an income and wealth distribution economist at the German Economic Institute (Institut der Deutschen Wirtschaft, IW), says it's difficult to determine how "rich-friendly" a country is because "rich" is a relative term. Does it mean having €135 million in assets, including a 10-bedroom-villa in Hamburg's Blankenese district, plus a spacious holiday home in Mallorca and a yacht, like music magnate Dieter Bohlen? Or does it mean having a small independent business valued at a million that can pay the salary of one or two other employees, support a mortgage on a house, and a yearly family ski vacation? 

Most people underestimate what it takes to be considered "rich," Stockhausen said, pointing to conservative politician and investment lobbyist Friedrich Merz, who infamously described himself as belonging to the "upper middle class" with his six-figure income.

"If you really have an income of a million, then you belong to the upper class, to the richest people by income in Germany, because the threshold at which you belong to the top 10% by income is below 1 million," Stockhausen said. An individual earning €42,000 a year after taxes lands in this top group. 

Germany's current top income tax rate of 45% — known as the "rich tax rate" (Reichensteuersatz) — applies to individuals who earn more than €250,000 per year — just some 108,000 individuals out of Germany's 42 million taxpayers. In comparison, neighboring France's top tax of 45% kicks in much lower, at around €158,000. 

Stefan Bach, a public economics research associate at the German Institute for Economic Research (DIW), pointed out that the highest earners can often skirt income taxes. "The superrich, the giant incomes, the businesses — the Klatten, Quandt, and Oetker families and so on — the family businesses, they aren't even included because their income is largely separated into business structures and therefore is not subject to the progressive income tax," he told DW.  

In contrast, the average German employee also has a heavy state benefit burden. According to a 2021 OECD report, single workers bear a higher net average tax burden in Germany than in any other OECD country — meaning a German employee pockets the lowest percentage of disposable pay. 

The OECD has criticized this as contributing to wealth inequality since, without disposable income, it is hard to save. 

"The tax burden on low labor income is high, due to high social security contributions, while environmental and property taxation is low and exemptions to inheritance and capital income taxes contribute to high wealth inequality," the OECD wrote in its 2020 economic survey on Germany.

Gifts and inheritance are some important ways in which wealth concentrates. Germany has comparatively generous policies, with one parent able to pass on €400,000 tax-free to a child; in France, the amount is just €100,000.

 

Of all money bequeathed or gifted, the DIW has found that half goes to the wealthiest 10%. "The higher an individual's income or own wealth is, the more like it is that this person will receive an inheritance or a gift," Markus Grabka, the head of the DIW's Socio-Economic Panel, said in an online interview. At the highest end, the Financial Times found last week that around 70% of German billionaires' wealth is inherited. 

Bach pointed out how superrich business families can also advantageously bequeath wealth. "The superrich with giant yearly incomes, say 20 million and up, they don't pay any inheritance tax if they have business wealth that passes along tax privileges," he said. He calls the inheritance tax a "sandwich tax," because it most heavily burdens those in the middle; the lower end doesn't have much if anything to pass on and the very top can lower their tax burden. 

Nevertheless, some very wealthy Germans have seen the tax regulations as unfavorable enough to spur them to move. Multimillionaire entrepreneur and TV celebrity Robert Geiss, born in Cologne, is rumored by media to have moved to Monaco in the mid-90s to take advantage of the principality's low taxes: no taxes on income, wealth or property, and — to the benefit of his two daughters — no inheritance tax for direct beneficiaries. 

Will Germany get a wealth tax?  

In Germany, a possible new wealth tax is currently drawing heated debate ahead of the September national election, with left-leaning German political parties have been calling for some form of reintroduction. While the country largely had some form of a wealth tax since 1893, it has not levied one since 1997, after Germany's top court declared it unconstitutional. 

The center-left Social Democrats have called for a 1% tax concentrating on the "very rich" and said they would also raise the top income tax rate. The Green party has called for a wealth tax on those who are "particularly rich" and inheritance tax reform. Most ambitiously, the socialist Left Party would like to see a wealth tax of 5% individuals with at least €1 million in assets. 

The conservative parties of Chancellor Angela Merkel's Christian Democratic Union (CDU) and Christian Social Union (CSU), as well as the business-friendly Free Democrats, are against its reintroduction, arguing it would be too costly to levy or would hurt family businesses.

 

Tax evasion meanwhile has been made more and more difficult in Germany over the past 15 years and is no longer an easy and lucrative option for the superrich. Reports like those on former tennis champion Boris Becker outraged the public: During the early '90s, he lived in Munich but claimed to reside in Monaco and said he was therefore not subject to German taxes. He was later found guilty of having evaded taxes to the tune of €1.7 million euros between 1991 and 1993 and sentenced to a suspended two-year prison sentence and a fine of €500,000.

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