ABSTRACT
This chapter summarizes the major defects in the German system of capital income taxation and to discuss some of the policy options available. Tax reform is a major economic policy issue in the Federal Republic of Germany. High-income earners see incentives to hold real capital, low-income earners are driven into financial assets. Apart from introducing measures relating to the tax treatment of savings and/or investment, there are other options for reforming capital income taxation. The German income tax system is already characterized by a relatively high degree of integration of the individual and the corporate income tax. The elements of the proposal are immediate expensing of investment expenditures, identical tax rates for retained profits and the interest income of households and a tax on distributed profits. The abolition of the business capital tax is one of the reform measures that is recommended most often.
