A Decision on Inheritance Tax by the German Constitutional Court: A Brief Comment

Abstract

In Germany, endowments and bequeathals are subject to between seven and fifty percent inheritance tax. Small and medium-sized family-run businesses are exempt from inheritance tax either partially or entirely. On 17 December 2014, Germany's Constitutional Court ruled that the present system of enabling businesses to “avoid paying” inheritance tax was in violation of the “rule of equal tax principal.” Furthermore, the inheritance tax law in its current form leaves plenty of leeway for variations in percentages of payments, which are difficult to justify. Thus, the Court ruled, existing laws are unconstitutional and must be reformed and replaced.

In this case note we argue from a socio-ethical viewpoint that inheritances taxes are in principle morally justified. One important key element of the tax system is trust. This trust can be strengthened by (1) creating sustainable laws that will stand the test of constitutional screening, (2) offering plausible justification for fiscal policies including exemptions on clear normative principles like subsidiarity, common good, freedom and simplicity, and (3) broadening the tax-paying basis without undercutting relevant human agency.