From Marital Income Splitting to Individual Taxation

In Germany, married couples are taxed according to the income splitting method. This paper proposes a reform aimed at reducing the negative work incentives for the second earner. To this end, marital income splitting would be replaced by individual taxation, but only to the extent that legal maintenance obligations to the spouse are recognised as an expense for tax purposes. Under the proposal put forward here, splitting would remain permissible for low income of the primary earner, and individual taxation would only take effect for sufficiently high income of the secondary earner. In the intermediate range, a specially designed equalisation rule ensures a smooth transition of the joint tax burden.