Inheritance Compromise

Death and Taxes

Everything is picobello for Mr. Schäuble. Source: Reuters
Everything is picobello for Mr. Schäuble.
  • Why it matters

    Why it matters

    The conservative Christian Social Union and center-left the Social Democratic Party have fought over issues ranging from means testing to the threshold where taxes kick in, with Finance Minister Wolfgang Schäuble trying to forge a compromise.

  • Facts

    Facts

    • A bill drafted by Mr. Schäuble reportedly does not go far enough for the CSU but too far for the SPD, suggesting the goal of getting the bill out of the cabinet is still not guaranteed.
    • Competing demands between publicly owned and family-owned businesses complicate efforts to arrive at a solution.
    • Another thorny issue is whether the personal assets of heirs should be included in their inheritance tax calculations.
  • Audio

    Audio

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Peter Struck, the former parliamentary leader of Germany’s center-left Social Democratic Party, once said no legislation should ever come out of parliament in the form it entered as a bill. The honor of elected officials demands that they shape the legislation, he said.

Nothing quite proves the rule so much as Germany’s impending inheritance tax reform, one of the most divisive measures facing the country at the moment.

The reforms, which would impose higher taxes on the heirs of Germany’s many family-owned businesses, follow a ruling by Germany’s constitutional court that found the government has granted far too many exemptions to wealthy company heirs.

After much coalition diplomacy, ministers with membership cards from the SPD and Bavaria’s conservative Christian Social Union, the CSU, have agreed to push through a bill drafted by Finance Minister Wolfgang Schäuble, a member of Chancellor Angela Merkel’s Christian Democrats, the CDU.

Yet sources within the awkward right-left governing coalition say that doesn’t necessarily mean the CSU and SPD actually stand behind the plans. For the CSU, the reforms still impose too high a cost on family businesses that form the backbone of Germany’s economy. For the SPD, the plans are too easy on those wealthy family members that can afford to pay taxes on the massive inheritances they receive.

Marginal changes made to the bill by Mr. Schäuble following weekend negotiations that benefit company heirs are not enough for the CSU, but already go too far for the SPD. The single goal of this arduous operation was to get a bill through the cabinet and introduce it to parliament. If not, the CSU and SPD would have continued to wrangle for months and quite possibly never reach an agreement. They would have achieved the worst possible result. Company heirs would receive no exemptions of any kind from the inheritance tax.

The reason for push is the deadline set by Germany’s Federal Constitutional Court. If no reform is enacted by June 30, 2016, the highest court may summarily overturn all exemption regulations currently applicable. A constitutional judge referred to this in January.

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