Economist Bert Rürup proposes significantly raising the value-added tax while simultaneously lowering income and corporate taxes. At first glance, this sounds like a simple tax swap. However, a closer look reveals a social imbalance. Low-income earners often pay little or no wage tax, yet they spend almost their entire income on everyday consumption—and it is precisely this daily spending that would become more expensive.
The wage tax threshold illustrates the problem
The basic tax-free allowance is set at €12,348 for 2026. This corresponds to approximately €1,029 in taxable income per month. Actual gross wages can be higher, as income-related expenses, provisions for retirement and insurance, and lump-sum allowances reduce the taxable income. For 2025, the Federal Ministry of Finance cites an annual gross wage of €16,836 as the point at which a single employee without children becomes liable for wage tax. This amounts to approximately €1,403 gross per month.
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According to the Federal Ministry of Finance (BMF), the income tax burden for single parents with one child begins at an annual income of around 21,860 euros—equivalent to a gross monthly income of approximately 1,822 euros. For married couples without children in tax class III, the threshold is 31,586 euros per year, or roughly 2,632 euros gross per month. Those earning below these limits derive no benefit whatsoever from an income tax cut, while those just above them receive only minimal relief.
Around three in ten adults pay no wage or income tax
Current data on tax policy for 2026 from the Federal Ministry of Finance illustrates the scale of this situation. Figures for 2025 show that just under 30 percent of adult residents were not subject to wage or income tax. Consequently, Rürup’s model does not affect merely a small, marginal group.
These individuals would gain little or nothing from an income tax cut, yet they would still face higher prices. They pay tax surcharges on purchases, clothing, repairs, electricity, mobile phone services, transport costs, and many other services. This is precisely what creates the social imbalance.
The bottom half pays hardly any income tax
The distribution of income tax payments further highlights this disparity. According to the Ministry’s projections, the bottom 20 percent of wage and income taxpayers contribute only a very small fraction of total tax revenue. Even the bottom 50 percent combined account for only a low single-digit percentage share, whereas higher income earners shoulder the bulk of the burden.
A cut in wage and income tax therefore does not have a uniform effect; it primarily benefits those who pay substantial amounts of tax—predominantly middle- and high-income earners. A consumption tax works differently. It affects daily necessities—expenses that low-income earners can hardly avoid. Why a Higher VAT Hits Low Incomes Especially Hard
Income and consumption data from the Federal Statistical Office reveal just how limited the financial leeway of low-income households is. In the lowest income brackets, virtually all disposable income goes toward private consumption. In some cases, consumption expenditure even matches the total monthly income. This demonstrates that these households have little capacity to offset higher consumption taxes; they must use almost their entire income for day-to-day expenses.
Consequently, the absolute level of spending is not the only factor that matters in the tax debate; the proportion of disposable income spent is crucial. Those with low earnings cannot simply defer consumption at will. These households need housing, heating, food, phone services, and transport, and they must replace broken appliances. Thus, a higher VAT does not target luxury goods; it hits everyday life.
The Lower Rate on Food Is Insufficient Compensation
Rürup proposes lowering the reduced VAT rate from 7 percent to 5 percent. This would provide relief on food and certain other goods. While this aspect is part of the overall picture, it does not alter the fundamental nature of the proposal. At the same time, the standard rate is set to rise from 19 percent to 22 percent. All told, the federal, state, and local governments are expected to generate around 40 billion euros in additional revenue.
This figure indicates that the state intends to collect significantly more revenue from consumption overall. While some food items would become cheaper, many other expenses would rise. If the cost increases were fully passed on to consumers, a product previously taxed at 19 percent would—mathematically speaking—become just over 2.5 percent more expensive. For low-income households, every such price hike counts.
Everyday life involves many taxable expenses
Precisely defining taxable consumption is difficult. Rents are largely exempt. Energy, goods, repairs, mobile phone services, transport, dining out, and many other services, however, are subject to taxation. Even if housing costs are excluded, a significant portion of ongoing expenses for low-income households remains affected.
These include food, clothing, household appliances, transport, communication, leisure activities, dining out, and many other goods and services. An increase in the standard tax rate would therefore not only raise the cost of occasional purchases; it would be embedded in numerous everyday items. This is precisely why it hits lower-income groups particularly hard.
Tax reform turns into redistribution from the bottom up
Higher earners spend more in absolute terms. However, the relative burden is what matters. Those who earn little spend a much larger share of their income on consumption. Those who earn a lot can save, invest, or build wealth. Consequently, a consumption tax hits low incomes harder in relative terms than high incomes.
Rürup’s proposal shifts the tax burden away from income and profits toward daily consumption. The relief comes through income tax and corporate tax cuts, while the burden arises at the point of purchase. This primarily benefits those who pay high taxes or taxes on corporate profits. People with low incomes, by contrast, pay higher prices without receiving comparable relief.
The proposal is politically highly sensitive
Before the federal election, Friedrich Merz warned against a higher consumption tax. He argued that such an increase would be poison for the economy and place a disproportionate burden on private households. Now, an expert proposal is on the table that paves the way for exactly that. While the CDU is not yet officially calling for this increase, the move shifts the terms of the debate.
Fair tax policy must reward effort without placing a heavier burden on the most vulnerable. Lowering income tax can make sense. However, it must not be financed by a tax that makes everyday life more expensive for low-income individuals. Otherwise, there is no relief; instead, wealth is redistributed from the bottom to the top.
Author: Blackout News
Sources: Business Punk (22.06.26) – Bild (21.06.26) – Bundesministerium der Finanzen (03.06.26) – Tagesschau (27.03.26) – Statistisches Bundesamt (09.12.25)