Tax justice for the small and medium-sized business sector

by Professor Dr Eberhard Hamer, Mittelstandsinstitut Niedersachsen e. V.

In Germany, the corporate income tax for corporate enterprises is 15 %, whereas a medium-sized entrepreneur has to pay income tax of 42 %. The difference was previously justified by the fact that capital shareholders (shareholders, GmbH shareholders) had to pay additional taxes on their profits, insofar as there was a compensation. In reality, however, this corporate argument is wrong: 70 % of our corporations are owned by fo Federal Councillor Hans Schaffner (left) and Federal Councillor Willy Spühler at an EFTA meeting in London in December 1966. With good negotiating skills and a great sense of responsibility, the best was achieved for Switzerland. (Picture keystone) reigners who do not pay taxes on their profits here, but abroad. And the international corporations - especially Big data - have their tax domicile in tax havens, so they pay no taxes at all. Example: Amazon, with 100 billion in profits in 2019, only had to pay 3 billion in local taxes.
  So, in practical terms, the middle class is often taxed at 70 % with 42 % income tax plus business tax plus indirect tax plus propaganda tax (GEZ) plus local real taxes, while corporations can escape most of these levies. An earlier study showed that the middle class pays more than 80 % of our taxes and social security contributions on net, while the corporations receive more subsidies than they pay in corporate income tax.1
  So, there is a blatant injustice in our tax system: corporations are coddled, spared, subsidised. In the biggest state redistribution in our history (more than 50 % GDP), the lower class receives more social benefits than it pays itself. The middle class is the only loser and the dominant payer (61 % of all that the recipients of social benefits receive and the state incurs in costs2).
  For decades, SME research and SME associations have been demanding that the government return to the tax policy of Ludwig Erhard, who managed to build up the German economy through self-financing, namely through a different concept of profit: in the 1950s, only distributions were taxed as profit, the same for all types of companies. In this way, companies were able to keep fictitious profits and investment costs in the company, grow, create jobs and achieve healthy finances.
  This infuriated the international banks at the time, who also wanted to earn from the economic upswing and urged Adenauer to provide debt financing for companies as in the Anglo-Saxon countries. Thus, the concept of taxation was changed from distributions to complicated theoretical internal surplus calculations in the company, fictitious profits and investments have to be taxed and the tax system has become so complicated that no one can see through it any more.
  This has hit above all the medium-sized companies, which cannot emigrate for tax purposes, do not have to transfer their profits abroad, but keep them at home and are thus at the mercy of the most meticulous tax bureaucracy in the world.
  The Mittelstandsinstitut Niedersachsen is therefore calling on the federal government not only to introduce loss carrybacks for a few years, but to take the whole step, namely to tax only distributions, as under Ludwig Erhard.
  No time is more favourable for this step than now, when profits are not being made anyway, companies are fighting for their existence and need more equity capital to survive at all.
  The Mittelstandsinstitut calls on the SME associations and chambers to join this demand for a change in the concept of profit and thus to give the economic sector that is most important for our prosperity – the SME sector – a chance to survive.
  The basic law of the market economy is equality of opportunities. Small and medium-sized enterprises are also entitled to equal treatment with corporations in tax law. Changing the definition of profit to distributions would finally create tax justice.  •

1 cf. Hamer, Eberhard. Wer finanziert den Staat? (Who finances the state?), Hannover 1982
2 cf. Ibid.


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