How much you pay the state and what you get back

Politicians want to relieve the burden on citizens because the tax burden is too high for many. But how big is it for an average household? A new tax calculator provides information.

SPD leader Norbert Walter-Borjans wants it, FDP chairman Christian Lindner wants it, Federal Minister of Economics Peter Altmaier (CDU) also wants it: the middle class in Germany should be relieved quickly, the tax burden should decrease.

Many citizens also wish to do so. More and more people complain that they have less gross net worth. But is that actually true? Exactly how much do German citizens pay to the state – and what do they get back from it?

The Cologne Institute for Economic Research (IW) has now investigated this question. In a new study, which the institute has connected to an interactive computer (see below), the IW illustrates how strongly redistribution works in Germany.

The calculator applies to households, not to people

“We wanted to face the current redistribution debate with facts,” said Martin Beznoska, author of the study. “With our calculator, we give taxpayers the opportunity to find out about average taxes directly.” The calculator answers two questions for any annual gross income:

  1. How much is the annual income compared to the other households in the income distribution?
  2. How much of this annual income does the average household pay to the tax authorities – and how much does the state get back in the form of transfer payments, pensions and similar payments?

The special thing about the calculation: In addition to income tax and transfer payments such as unemployment benefits, the study authors also take into account factors such as the average VAT, alcohol or tobacco tax paid each year. “The payments made and services received do not have to apply to every household,” says Beznoska. “For our calculation, we first used the average values ​​for the respective income group.”

In plain language: The calculator is only suitable to a limited extent to draw conclusions about the personal life situation. However, he gives a feeling for the standard of living and the share in the financing of the state, said Beznoska.

Single households with 50,000 euros gross pay around 9,000 euros to the state

A reading example: A single without children who receives a gross income of 50,000 euros per year transfers an average of 25,375 euros to the state every year. In addition to income tax, this sum includes contributions for health insurance, unemployment and pension insurance, but also the average VAT paid.

At the same time, average single households with the same annual income get an average of 16,274 euros back from the state. Transfer benefits such as unemployment benefit I, Hartz IV, basic security or Bafög are included here.

Not all households receive these government grants. Some people don’t get pensions because they are still working. Because pensioners also fall into the income group (gross EUR 50,000 per year), the calculator initially displays a pension payment of EUR 1,929. The same applies to people who receive unemployment benefits or receive parental benefits.

If you offset the average taxes paid and the average transfer payments received from the state, the result is a balance of EUR 9,101. In other words: average single households with an annual gross income of 50,000 euros finance the German state with a little more than 9,000 euros per year.

Information on income distribution

In relation to the rest of the population, single households with such an income are still doing well. Only 24 percent of the population have more gross net income and thus achieve a higher standard of living. 76 percent of all households are doing worse. On average, you have less money in your pocket.

For comparison: a three-person household with two adults and one child with the same income only achieves a higher standard of living than 38 percent of the rest of the population – 62 percent of households are doing better. What is also striking: A three-person household with an annual income of 50,000 euros receives on average almost 4,600 euros more from the state than it pays in taxes and other charges, so it is a net recipient.

How do you compare your income to the rest of the population – and how much does your income group finance the state? Find out by using the IW Köln calculator.

In addition to information on taxes and transfer payments for the respective income groups, the study also provides general insights into government income redistribution. The most important results at a glance:

  • 54 percent of households on average pay more than they get: Households whose income is in the lower 46 percent of the income distribution are therefore net recipients. According to this calculation, a single without children only becomes a net donor from an annual gross income of EUR 31,500, those who earn less receive on average money from the state.
  • The redistribution mechanisms work: The tax burden increases with increasing income. The top 1 percent of income transfers an average of 39 percent of income to the tax authorities. However, since people in the highest income group still receive state transfers, such as parental allowance, the net burden here is on average 38 percent.
  • The poorest pay relatively high taxes: Households whose income is in the bottom 10 percent of the distribution receive the most transfer payments. However, they pay an average of 22.1 percent of their income to the state in the form of taxes, significantly more than many middle-income households. One of the reasons for this is that VAT is the same for everyone: those who are poorer have a higher percentage burden.

How to use the control computer
Where are you on this scale? How is your income compared to the rest of the population? You can find out with the computer from IW Köln, which was developed for the new study.
To do this, you have to state the gross annual income of your household, i.e. the total income of all people living in your household. Also how many people live in your household over and under 14 years. The calculator shows you how your household looks compared to other households. What he doesn’t show is what your personal income looks like compared to the rest of the population.
You can also see how much a household comparable to your standard of living contributes to the financing of the state, i.e. how high the taxes and payments are that a comparable household with the same income receives or pays.
So don’t be surprised that there are also duties and payments that you don’t actually receive. The graphic only shows an average value for comparable households – this also includes pensioners, the unemployed or families. That is why payments such as Bafög, child benefit or basic security in old age can also be found there.

But what does all this mean for the middle class? IW economist Beznoska has a clear opinion: “The burden on the middle class has grown significantly in recent years.” The main reason for this is that the limits for income tax have not been adjusted. “Here politicians have to take countermeasures and raise income tax limits.” The so-called middle-class belly, i.e. the tax burden on lower incomes, has to be flattened, says Beznoska.

For the study, the IW Cologne worked with data from the Socio-Economic Panel, a repeated survey of households in which income is also regularly collected. The data on indirect taxes such as VAT, alcohol or tobacco tax come from the Income and Wealth Survey (EVS).

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