ABSTRACT
This chapter is concerned with both efficiency and equity considerations of taxing capital income. Equity played a prominent role in the debate about taxation of capital income and particularly in the case of the withholding tax on interest income in Germany. It focuses on the withholding tax on interest income introduced in Germany in 1987, and subsequently abolished, largely because it turned out that it aroused extreme public resentment, to say the least. The introduction of a withholding tax on interest income in Germany showed at any rate that taxpayers' willingness on this particular point to make their contribution to tax equity had been overestimated. The saver's allowable deduction for income tax, which was doubled in the Federal Republic of Germany and amounts to DM 600 for single persons and DM 1,200 for married couples, is well below the level of tax-free investment income in France.
