Ehegattensplitting reform backed by broad economist coalition proposing limited Realsplitting
Broad coalition of economists urges an Ehegattensplitting reform to a limited Realsplitting, boosting child benefits and shifting tax support to families.
A wide cross-section of economists and social scientists has urged Chancellor Friedrich Merz and Finance Minister Lars Klingbeil to adopt an Ehegattensplitting reform that replaces full income splitting with a limited Realsplitting mechanism. The open letter, initiated by Monika Schnitzer and supported by senior figures such as Clemens Fuest, Marcel Fratzscher and Moritz Schularick, proposes a targeted change to the tax treatment of married couples while steering extra revenues into child and family support. The proposal aims to reduce incentives for single-earner households, increase work incentives for second earners and reallocate fiscal support to where parents actually bear child-rearing costs.
Broad Expert Alliance Calls for Change
The signatories include leading economists from competing institutes and two former constitutional judges, an unusual alignment across policy and ideological lines. Initiators named in the letter include Monika Schnitzer, Nicola Fuchs‑Schündeln and DIW economist Katharina Wrohlich, who coordinated the reform proposal and commissioned simulation work. The coalition frames the call as a pragmatic compromise that preserves tax recognition of marriage while addressing distributional and labor-market concerns tied to the existing system.
How the Proposed Realsplitting Would Work
Under the suggested Realsplitting model the current joint‑income halving method would be replaced by a limited transfer mechanism for spouses. The higher‑earning partner could deduct up to €13,805 from their taxable income and the lower‑earning partner would report that sum as taxable other income, a rule modeled on existing maintenance payment provisions. Advocates argue this preserves constitutional parity between married and divorced couples while reducing the strong marriage subsidy that penalizes labour-force participation by second earners.
Funding Shift to Children and Families
The group proposes that any increased federal revenue generated by the new tax design be ring‑fenced entirely for family policy measures. Specifically, they call for raising child benefit from €259 to €316 per month and increasing the child tax allowance from €9,756 to €11,902 per child, adjustments the economists estimate amount to roughly a 22 percent uplift in direct child support. The intention is to reallocate incentives away from marital tax advantages and toward explicit financial support for children regardless of parental marital status.
Winners and Losers in the Distributional Balance
According to the researchers’ calculations, households with children would typically gain under the package, with an average net increase of about €585 per year. Couples without children, particularly single‑earner households, would face average net losses estimated at roughly €316 annually, putting pressure on higher‑income single‑breadwinner arrangements. The model is designed to be progressive overall: middle and lower‑income households would see relief on average, while the top two income deciles would bear a larger share of the burden.
Labour Market Effects and Economic Rationale
A central objective of the reform is to strengthen work incentives for second earners — most often women — by reducing the tax penalty on additional hours worked. The economists cite Germany’s comparatively high female part‑time employment rate and warn that unused labour potential will aggravate demographic and skills shortages. Their simulations suggest the policy could raise labour supply by about 49,000 full‑time equivalent positions over the medium term, offsetting some fiscal costs through higher earnings and social contributions.
Political Response and Implementation Challenges
Finance Minister Lars Klingbeil has previously described the current spousal income regime as a “tax system from the last century” and is reported to welcome reform discussions, while Chancellor Merz is inclined to preserve the existing model. The letter and accompanying analysis now place a concrete design on the table for political negotiation, but the authors acknowledge transition rules will be necessary; initial implementation could require about €1.3 billion in additional annual spending until behavioural gains materialise. Parliament will face complex trade‑offs between distributional fairness, fiscal cost and the political salience of marital tax recognition.
The proposal now arrives at a pivotal moment for German family and tax policy: it frames a targeted Ehegattensplitting reform as both a social‑policy reallocation and an economic incentive instrument, but its fate will depend on negotiations among parties, ministries and public stakeholders in the months ahead.
