NCPA - National Center for Policy Analysis

Germany May Cut Capital Gains Tax

December 28, 1999

Shares of German banks and insurance companies soared last week after it was discovered that Chancellor Gerhard Schroeder's proposed tax reform removes the 50 percent capital gains tax corporations must pay when they sell off shares in other corporations.

The provision was buried in Schroeder's $36 billion tax relief plan, but is expected to drastically change the financial-industrial landscape of Germany.

  • Financial institutions in Germany hold large equity stakes in nonbanking corporations there -- and give inefficient firms access to cheap loans -- but divestiture of stocks will free up vast amounts of capital to invest in smaller companies and startups.
  • The tax package also includes reductions in personal income tax rates, with the top rate of 53 percent falling to 45 percent -- effective 2005.
  • And the federal corporate tax rate will fall to 25 percent from 40 percent -- although with local levies the effective rate will still be a high 38 to 39 percent.

Still, analysts say it is a move in the right direction, which is surprising coming from a socialist government.

Source: Editorial, "Germany's Quiet Tax Revolution," Wall Street Journal, December 28, 1999.


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