German Coalition Divided on Taxes: Merz Blocks SPD Proposals

The German coalition government is facing a deep decision-making crisis on fiscal matters, highlighted by recent statements from key politicians ahead of the upcoming CDU party conference in Stuttgart. Chancellor Friedrich Merz (CDU) categorically opposed the demands of the co-governing SPD, which seeks to increase taxation for the highest earners and heirs to large fortunes. Using a vivid comparison, Merz stated that "the lemon has already been squeezed," pointing out that the total burden on the wealthiest, including church tax and solidarity surcharge, is already hovering around 50 percent. This position is supported by the head of Bavaria's CSU, Markus Söder, who announced a blockade of any attempts to raise indirect and inheritance taxes. A completely different perspective is presented by Lars Klingbeil, serving as Finance Minister, who announced he would present a comprehensive tax reform plan later this year. Although Klingbeil declares a priority for budget savings, he does not completely rule out tax increases as a last resort. The main goal of the Social Democrats remains to relieve low- and middle-income earners, which, given the current budget deficit estimated at 130 billion euros, raises questions about the feasibility of such plans without increasing state revenue. Experts, including DIW President Marcel Fratzscher, suggest that the coalition deadlock may ultimately lead to raising the standard VAT rate from 19 to 21 percent. The German tax system is based on progressive taxation, which has been a subject of dispute between Christian Democrats and Social Democrats for years. The last major structural reform took place during Gerhard Schröder's government at the beginning of the 21st century, when the highest income tax rate was significantly lowered. Internal opposition within the CDU, represented by Carsten Linnemann and the MIT organization, is pushing to shift the tax threshold for the highest rate to 80,000 euros annually. Currently, many skilled workers fall into the highest tax bracket, which, according to Christian Democrats, hampers economic growth and innovation. The tax dispute thus becomes the main flashpoint in relations between CDU and SPD, determining the direction of the campaign for future elections. „We are already at a point where the so-called tax for the rich, including church tax, is approaching 50 percent. The lemon is already completely squeezed.” — Friedrich Merz130 billion € — is the gap in the German federal budgetCurrent VAT rate: 19, Fratzscher's forecast (VAT): 21, Max rate with burdens: 50Approach to Fiscal Policy: : → ; : → [{"dataISO": "2026-02-20", "data": "February 20, 2026", "event": "Start of CDU conference in Stuttgart"}, {"dataISO": "2026-12-31", "data": "by end of 2026", "event": "Presentation of Klingbeil's reform plan"}]Media emphasize the need for social justice and relieving the poorest at the expense of capital. | Commentators stress the right to property protection, the risk of declining competitiveness, and excessive state fiscalism.