We first simulate in detail, how much additional taxes the left’s plans could bring in, but first “before adaptive reactions”. What this means is that the simulation initially takes place as if the rich and super-rich would not react at all to the massive tax burden, i.e. no one would move away, for example.

The DIW politely says: Impossible!

However, the next step is about exactly these evasive reactions. Has anyone on the left read to page 44 and understood the following passage? “Taxpayers can adjust their investments and other portfolios as well as financing. In particular, they can invest abroad, provided that foreign investments are tax-privileged or tax-exempt. Therefore, foreign assets should be fully included in the tax liability. To this end, existing double taxation agreements that exempt foreign assets of residents from tax, for example in the case of companies or real estate, must be converted to the imputation method.”

Of course, the DIW doesn’t tell its client this clearly, but translated it means that it’s impossible. Germany cannot unilaterally change existing double taxation agreements, but always needs the consent of the partner country. For example, in the double taxation agreement with the USA, the exemption method applies to many corporate profits and real estate, and the USA would have little interest in changing this in favor of an imputation method that puts its own investors worse off.

Renegotiate double taxation agreements

Experience has shown that renegotiation of such agreements takes many years, often a decade or longer, because both parliaments have to agree. In addition, over 90 German double taxation agreements would have to be renegotiated worldwide, which is diplomatically and administratively unrealistic. In practice, capital and investment would divert for a long time before such a globally coordinated system could be implemented.

The consequences of the alternative reactions can only be estimated, but the DIW estimates that with a property or company return of four percent, the tax revenue expected without an alternative reaction would fall by 98 percent, and with a return of six percent by at least 74 percent (p. 49).

Cooperation with the OECD countries and G20 countries is necessary

The DIW’s conclusion is crystal clear: The Left’s plans can only be meaningfully implemented “with consistent foreign tax protection or only in cooperation with the OECD countries and other G20 countries” (p.50).

This requirement is of course completely unrealistic because it assumes that almost all important industrialized countries agree on identical wealth taxation rules at the same time. Even much smaller OECD tax projects, such as minimum taxes for companies, have only worked partially and with a long delay despite years of negotiations. Countries such as the USA, Switzerland and Singapore would also have strong economic incentives not to agree to such coordination because it would allow them to attract capital. Even within the EU, tax harmonization regularly fails due to national interests, although institutional structures for cooperation exist there.

Anyone who writes that a global agreement among OECD and G20 countries is the prerequisite for implementing the Left’s plans is only politely saying that they are completely out of touch with reality.

Risks for jobs and reduced tax revenue

But that’s not enough. The DIW also says that the Left’s plans would lead to “significant economic risks.” Large international investors would “take a detour around Germany” when implementing the plans and the German business location would be significantly burdened (p. 53).

Possible consequences would be that jobs in Germany would be reduced, value creation and growth would decline, and with it the income from wage taxes, social contributions and indirect taxes (p. 52). This could only be avoided if the tax burden was coordinated internationally – which, as shown, is very unrealistic.

Do the Left’s plans violate the Basic Law?

In addition, the DIW has doubts as to whether the Left’s plans would violate the Basic Law. On page 33 it says that there are “greater constitutional risks” given the high tax rates. And on page 52 it is calculated that, according to the Left’s plans, the profits of the super-rich would be “largely taxed away” and that they would be “slowly and coldly expropriated”.

You have to have respect for the DIW: It is certainly not easy to write a report that so clearly refutes the plans of the party that commissioned it. In future, every discussion with representatives of the left should refer precisely to this report.