Solidarity beyond taxation

„Coercion doesn’t create good will” is a wise proverb – occasionally referred to as patriarchal. With a synonym for this adjective being patronizing, it is particularly fitting for the proposal that recently hit German headlines: to bolster public finances shaken by the Euro crisis with forced loans and one-time capital levies on the rich. Buoyed by the summer slump, the idea has received much attention. The possibility that the wealthiest 10’000 might voluntarily stand up for society is blanked out from this debate. This is wrong – both, because there is a long list of reasons against wealth taxes and because we need more civic engagement and solidarity beyond taxation.

As much as one might regret it, capital is mobile and in a globalized world no longer tied to national boundaries. Whoever still seeks proof for that, only needs to look at capital flight from Greece. Whether the country’s elite – at least in financial terms – lives up to its responsibilities by sending its money abroad, is a different matter. So is the fact that Athens allegedly has the highest Porsche-Cayenne-concentration of all cities in Europe while at the same time reporting the smallest European number of tax payers with an income above 100’000 Euro. This is disturbing. But it is also a case in point for the difficulties faced by tax collectors in general and with regard to wealth taxes in particular.

Moreover and often forgotten in the German debate, the country’s constitution permits levies that reduce wealth rather than merely taxing income from wealth only in exceptional cases. In addition, the country’s large fortunes are usually tied up in companies and thus used productively to secure jobs and prosperity. How should these assets be valued? And how can taxes on them be paid without endangering the companies and thus employment?

At the same time, and further to the points above on the origin of government revenues, there is the fundamental question whether the state spends too much money and if it’s invested wisely. In addition, it is doubtful whether the wellbeing of our community should indeed, as often suggested, solely depend on contributions from government. The virtuous motto of previous generations, “work, earn, pay taxes and die”, could be replaced by today’s affluent societies with “learn, earn and return”. Indeed, there are numerous examples of wealthy people that voluntarily contribute substantial financial resources to the common good. Even though the widely reported boom of German foundations did not bring along vast amounts of financial resources, there are donors who contribute nearly all of their money to charitable causes. Getting engaged, shaping one’s environment, whether with money or time, is in everybody’s self-interest. This does not only relate to the responsibility of elites, but to civic engagement by society at large. Ensuring that those who are currently left behind due to lower educational attainment and a difficult personal history can become tomorrow’s taxpaying citizens is critical – also to finance our social and education systems. To target this objective, it’s not just government support that is needed, but also the efforts of reading mentors, learning coaches, as well as companies that offer internships and apprenticeships. Nearly every firm in Germany is involved in this in one form or the other. This does not only help society, but is also good for the corporate world: it increases the attractiveness of the communities they operate in, improves corporate culture, helps in motivating, training and attracting staff – and promotes the social market economy that Germany has profited from over decades.

At the same time, no philanthropic contribution, however big and selfless it may be, can today counter the widespread support for various forms of capital levies among parts of the German public. In fact, several surveys show that only one fifth of the country’s population believes the distribution of income and wealth is fair. Our opaque tax system is partly to blame for this as it makes it nearly impossible to judge whether individual capacity and tax burden are in line. More transparency in the thicket of the tax jungle would help significantly to make the everlasting debate on distributional policies a more rational one. It would also be beneficial for the discussion about the legitimacy of philanthropy.  In contrast to taxes, it’s only the donor that decides where his or her charitable contributions go. Against this background, many believe that taxes are better than voluntary gifts.

Obviously, tax rates and even the constitution can be changed – provided the political majorities are there. However, public debates about justice are often based on individual cases and frequently neglect the fact, that emotions around such cases can rarely be translated into laws. Especially now, as the crisis of the common currency puts policymakers across the European Union under great pressure, it is good to know, that constitutional procedures establish somewhat of a firewall between the urge for short-term action and the long-term solutions we need. Solidarity and civic engagement are key components of this solution. They can’t be imposed through wealth taxes.

A previous version of this article was published in German in Die Welt and is available here.