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Merkel Wins 2nd Term in Germany, Touts Tax Cuts

September 28, 2009 · 4 comments

“Lesen Sie es von meinen Lippen ab, keine neuen Steuern.”
(translation: Read my lips, no new taxes.)

Okay, maybe German Chancellor Angela Merkel didn’t actually say that – but that was the gist of her message when she made a play for a second term. And it worked.

With Germany suffering through its own economic woes, taxes were a big issue in the current elections. Merkel’s opposition dug in their heels over a scheme to raise taxes on the top wage earners (hmm…. where have we heard that before?). As a result, the SPD (the party of Steinmeier, Merkel’s challenger) suffered its biggest loss since World War II.

Merkel, on the other hand, promised across-the-board tax cuts of 15 billion euros ($22 billion), claiming that she wants to be the “Chancellor for all Germans.” She also claimed that she would cut the lowest tax rate from 14% to 12% – it is 10% in the US – and raise the threshold to qualify for the top tax rate to 60,000 euros (roughly $87,774) from 40,000 euros ($58,516) – the top rate in the US hits at $372,950 for singles. Those strategies helped her win for her party, the Christian Democratic Union, together with their sister party in Bavaria, the Christian Social Union.

Of course, “win” is relative. Voter turn out was a record low and Merkel’s own party saw its worst “victory” in post-war voting. Many blame a bleak economy for the turnout.

As in the US, critics are calling Merkel’s plans for tax cuts dangerous, noting that Germany plans to double their foreign debt next year to record levels. Nonetheless, Merkel and her party believe that the cuts will spur the economy forward.

She will face at least one challenge: consensus. She owes part of her victory to the Free Democrat party, currently led by Guido Westerwelle. Westerwelle wants even more severe tax cuts than Merkel has promised. Taxes could prove to be something of a sticking point for the two moving forward. Heinrich Oberreuter, a political science professor at the University of Passau, has predicted that taxes will be “the Achilles’ heel of the Free Democrats and the (new) coalition as a whole,” claiming that tax cuts just aren’t possible in the current economic climate.

I guess we’ll see… In the meantime, the euro is expected to jump today on the news.

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1 vibaku September 29, 2009 at 2:48 am

Merkel has reluctantly agree to expanding insurance of bank deposits, she did sign a stimulus plan, but as criticized the US for the overly large one that we have enacted and criticized Obama for planning further stimulus plans.

She has stated her plan for further Free-Market reforms in Germany. Historically, she has supported reducing the VAT and substituting a flat tax. While German coalition politics have forced her to compromise some of those views her core positions are for fiscal restraint. She has been closer to Bush than Obama in her Middle East policy.

This was not a win for Obama, and unlike CNN’s reporting it does not show a weakening f her position, but rather she is stronger because she is able to take on a more conservative coalition partner than she had previously.

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