German coalition deadlocked on tax reform as SPD insists on higher taxes for top earners

The leaders of Germany's ruling coalition, the CDU/CSU and SPD, met on May 12 in Berlin for a committee session aimed at breaking a months-long deadlock over tax relief and economic stimulus, but remained deeply divided over how to finance the planned reforms.

Vice Chancellor and SPD leader Lars Klingbeil insisted that any income tax reform must include higher taxes for top earners to finance relief for middle incomes. "It can be no income tax reform without top earners in this country paying more," Klingbeil said at the DGB trade union congress in Berlin on May 11. He called for relief for workers earning between 2,500 and 4,000 euros per month. The Union rejects higher taxes on the wealthy.

Union parliamentary group leader Jens Spahn proposed a blanket 5% cut in subsidies and tax breaks to finance tax reform, arguing that such a step would have "a higher acceptance than working through every subsidy individually." Klingbeil said he was "open in principle" to Spahn's subsidy-cut proposal but demanded concrete details, noting the coalition must "very concretely agree" on what such cuts would mean. Union parliamentary manager Steffen Bilger said the Union is "open to the SPD's proposals for financing tax reform" but urged looking at the spending side first, citing "a lot of savings potential in the federal budget."

The coalition is also seeking alternatives to the 1,000-euro employer-paid relief bonus, which was blocked by the Bundesrat. Twelve of 16 German states voted against the bonus in the Bundesrat, including all states led by the Union. Chancellor Friedrich Merz (CDU) described the tank discount of 17 cents per liter on gasoline and diesel — part of the hastily agreed relief package from the previous coalition committee meeting — as "so-so" in effectiveness.

Merz faced boos and whistles at the DGB trade union congress on May 12 as he called for deep social reforms. Labor Minister Bärbel Bas (SPD) pushed back at the same congress, saying: "Reform does not mean cuts." She said she wants to make social security "smarter, not smaller."

Klingbeil also called for reform of the inheritance tax, noting the state collects only 13 billion euros on 300–400 billion euros inherited annually. "No one can claim that the country would go under with a moderate increase," he said.

The previous coalition committee meeting in April at Villa Borsig ended with open disputes and only a hastily agreed relief package. The May 12 session was described by participants as a working meeting focused on planning rather than final decisions.