Karlsruhe’s Federal Constitutional Court has ruled that the solidarity surcharge will remain in effect, despite challenges from six members of the Free Democratic Party who argue it is unnecessary following the completion of German reunification. The court affirmed the surcharge’s constitutionality, highlighting a continued financial need estimated at 11 to 12 billion euros annually. As coalition talks progress, the SPD supports the surcharge, while CDU and CSU push for its abolition, emphasizing the differing perspectives on its future in Germany’s economic landscape.
Karlsruhe’s Ruling on the Solidarity Surcharge
The Federal Constitutional Court in Karlsruhe has made a significant ruling: the solidarity surcharge will continue to be in effect. Although the plaintiffs are still hopeful for its eventual repeal, this decision will undoubtedly play a crucial role in the ongoing coalition discussions between the Union and the SPD.
The lawsuit was initiated by six members of the Free Democratic Party (FDP), including former FDP parliamentary group leader Christian Dürr and Florian Toncar, who previously served as the parliamentary state secretary in the Federal Ministry of Finance until the collapse of the traffic light coalition. The plaintiffs contended that the solidarity surcharge, introduced in 1995 to help fund the costs associated with German reunification and the reconstruction of the East, is no longer necessary.
The Court’s Justification and Future Implications
The plaintiffs argued that since reunification is now financially complete, continuing to levy the surcharge is unjustified and unconstitutional. However, the Federal Constitutional Court disagreed. Judge Christine Langenfeld announced that the federal government retains the right to collect the solidarity surcharge, affirming its constitutionality both in 2020 and in its revised form since 2021.
Initially, this surcharge was mandatory for all taxpayers, but a change in regulation in 2021 meant that approximately 90 percent of taxpayers are now exempt. Only high earners and corporations are still required to pay, including on capital gains.
In its ruling, the court underscored that while the surcharge should not be imposed indefinitely, legislators must regularly evaluate whether financial burdens related to reunification still exist. A vital component of the court’s decision was a report from the German Institute for Economic Research (DIW), which estimated the ongoing financial need at 11 to 12 billion euros annually. Although differing opinions were presented during the hearings, Judge Langenfeld emphasized that it is not the court’s role to choose between various economic assessments as long as the legislator’s assumptions are reasonable.
The federal government also presented arguments highlighting the ongoing financial impact of reunification, with State Secretary Luise Hölscher noting that tax revenues in the eastern states remain significantly lower. She stated, “The revenue from taxes is demonstrably lower in the new federal states,” reinforcing the need for the solidarity surcharge to facilitate essential investments.
Despite the court’s decision, plaintiff Toncar remains optimistic about a future repeal, suggesting that the surcharge may eventually be deemed unconstitutional as the additional financial needs tied to reunification diminish. He also called on the new federal government to take proactive steps towards abolishing the surcharge, describing it as a politically sound move.
As coalition negotiations progress, it will be intriguing to see how the Union and SPD address the solidarity surcharge. The SPD is in favor of retaining it, with Johannes Fechner asserting that the ruling strengthens their position, advocating for the surcharge to be levied only on the top ten percent of taxpayers. Conversely, the CDU and CSU advocated for its complete abolition to alleviate burdens on workers and businesses.
Case No. 2 BvR 1505/20