VAT Spiral: How Higher Sales Tax Fuels Inflation and Raises Tax Revenue

• Germany’s VAT rate has repeatedly increased over time, from 14% to 19%, mainly to boost state revenue.
• Higher VAT raises consumer prices and especially hurts lower-income households, since VAT is paid through consumption.
• Rising prices can lead to higher wage demands, which raise business costs and may further fuel inflation.
• The state can benefit multiple times from this cycle through VAT, income tax, social contributions, and cold progression.
• The text questions whether permanently raising taxes is a sustainable solution, especially alongside perceived inefficient public spending.

Source: nwb-experten-blog.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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