PapaScott I like big blogs and I cannot lie! ­čÉś

Subsidized Day Care

Over the weekend when doing income taxes, I was surprised to learn that the German government is now paying 25% of our day care costs. As of 2003, child care costs are generally tax deductable, and since we pay our Tagesmutter 600 Euros per month, that's not a small amount added to our tax refund. Thank you, Chancellor Schr├Âder.

Of course, we're in a high tax bracket and could afford day care even without the deduction. For a low or middle class family who actually needs the help, the subsidy is much less, which I don't think was exactly what Red/Green had in mind. Child care is subsidized for the rich, while the government kindergarten system, which is supposed to guarantee a place for all pre-school children, is underfunded and fails to provide places for 200,000 children. (The failed voucher system in Hamburg is an extreme example. The Abendblatt recently reported on a case where an unemployed mother was unable to accept employment because she would then lose her kindergarten voucher. Child care only if you don't need it!)

The government is also kind enough to subsidize my daily commute to work, which is expensive because of high gas taxes and because I choose to live outside the city. Since the deduction is a flat rate per kilometer based on a mid-sized car, I actually make money on the deduction by driving a small car or taking the train.

That's the thing with a high, progressive income tax with a lot of loopholes. The deductions are then degressive, benefitting the rich more than the poor. At high tax brackets, it becomes more lucrative to expend effort to find tax loopholes than to actually be productive and increase one's income (and expand the economy and create jobs).

All the parties have been talking about reforming the income tax by lowering rates and removing loopholes, but they aren't doing much about it.

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