German Chancellor Angela Merkel talks with Free Democratic Party chief Christian Lindner at the Bundestag in Berlin. Photo: AFP: Barbara Sax

Rising incomes in Germany have increased marginal tax rates, according to IW Köln, a German research institute, Handelsblatt reports this morning. The average German worker paid 15.7% in federal taxes in 2005 vs. 17.6% last year. Twice as many Germans, moreover, pay the 42% top marginal tax rate. Free Democratic Party chief Christian Lindner told the German daily, “The state’s appetite for revenues has taken on features of kleptocracy.”

Tax cuts are likely to be an important issue in Germany’s national elections this September. Finance Minister Wolfgang Schaueble discouraged the notion of large-scale tax cuts earlier, warning that Germany needed to spend more on the military, internal security and infrastructure, not to mention the multi-billion dollar cost of the 1.2 million refugees Germany accepted during the past two years.

But with the country’s budget surplus at 55 billion Euro and a sharp increase in the number of taxpayers at the top marginal rate, the case for tax cuts has become stronger. If the tax issue gets legs the minority Free Democratic Party might gain enough votes to form a coalition with Angela Merkel’s CDU.