Klingbeil's two tax reform models: up to €900 relief, but Union faces inheritance tax dilemma

Two competing models

On the eve of the coalition committee meeting, details of Finance Minister Lars Klingbeil's tax reform proposals were leaked to Stern and other outlets. The Finance Ministry has prepared two variants. The larger model would cut income taxes by €28 billion annually, delivering €800–900 in yearly relief for taxpayers earning €40,000–60,000. The smaller model, with a €17 billion price tag, would provide roughly half that amount. Both would benefit over 35 million taxpayers, with singles earning up to €115,000–140,000 gross still seeing a net gain.

Financing and the inheritance tax wedge

The two models differ sharply in how they are paid for. The larger package relies in part on higher inheritance tax and closing loopholes in the current system, a red line for the CSU and a divisive issue within the CDU. The smaller model avoids inheritance tax changes entirely, instead leaning on subsidy cuts and the abolition of tax breaks such as the craftsman bonus and favourable company-car rules. Both variants raise the top income tax rate from 42% to 44% and lower the threshold at which it applies to around €75,657, rather than the previously discussed €80,000. The wealth tax rate would kick in at €200,000 instead of €278,000, rising to 49% in the large model and 48% in the small one. Klingbeil’s ministry estimates that the large model would leave nearly one million top earners paying more, while the small model would affect about 1.5 million.

Political reactions

The CDU Economic Council demanded a full abolition of the solidarity surcharge and rejected any increase in top tax rates. Secretary General Wolfgang Steiger told Funke media:

It is time to finally abolish the solidarity surcharge completely.

He warned that higher taxes on top earners would hit family businesses organised as partnerships, reducing investment and jobs. The Taxpayers’ Association also called for a “liberation strike” with substantial relief, criticising that the top rate already bites at incomes that are “not top earnings at all.”

Enough with small-scale measures, we need a liberation strike with substantial relief volume.

Bremen’s Green finance senator Björn Fecker backed relief for the broad middle but insisted that reforms must be revenue-neutral for states and municipalities.

We cannot cope with further holes in our budgets.

What comes next

The coalition committee meets on Wednesday, but a final deal is far from certain. The tax package is the most contentious part of a broader reform agenda that also includes labour market changes. No decision was reached at a party leaders’ meeting on Sunday. Klingbeil is not expected to table a finished bill; instead, the parties will negotiate political guidelines. If a compromise emerges, relief could be phased in over two stages, with the first taking effect on 1 January 2027 and the second in early 2028, easing the immediate budget impact.