Solidarity Tax Definition

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Solidarity Tax Definition

What Is a Solidarity Tax?

A solidarity tax is a charge imposed by the government in order to provide financing for ostensibly uniting (or consolidating) undertakings. The tax works in tandem with income taxes, imposing an extra cost on taxpayers such as individuals, sole proprietors, and businesses.

Key Takeaways

  • A government-imposed solidarity tax is an extra tax levied to finance socially uniting activities or initiatives.
  • Examples include a fuel levy to pay education or roads, or an increase in the federal income tax to fund war operations.
  • Although certain wealth taxes have been in place for extended periods of time, solidarity taxes are often designed to be short-term financial solutions.

How Solidarity Tax Works

The government collects a solidarity tax to assist support programs that try to unite the people behind one or more specified aims. The tax is paid in addition to personal or corporate income tax and is usually computed as a percentage of the total tax bill. In certain circumstances, the fee is fixed.

During times of conflict, solidarity taxes may be imposed, or large works may be undertaken, both of which energize a populace and its patriotic spirit. One-time assessments, a surcharge on income taxes, a surcharge on sales or VAT taxes, or various means of collection are all examples of solidarity taxes. Most solidarity taxes are designed to be temporary and not permanent, however this is not always the case.

Examples of Solidarity Taxes

Germany

Several countries have explored or implemented a solidarity tax, most notably Germany, which used its solidarity tax to assist reconstruct eastern Germany. Following the reunification of East and West Germany in 1991, the government imposed a solidarity tax of 7.5% on all personal income. The tax was intended to generate funds for the newly consolidated government. It was only intended to be a short-term initiative, therefore it was only implemented and collected for a year.

  Cash Basis Taxpayer Definition

However, the government reinstated the levy in 1995 to assist support economic growth in Germany’s east. Since the rate was decreased in 1998, taxpayers have been required to pay a 5.5% surtax on their annual business and individual tax bills to fund the solidarity tax. The long-term German solidarity tax has been criticized for being unlawful since it was supposed to be a short-term surcharge or supplemental tax on top of ordinary income taxes.

In 2018, the country’s two largest political parties, the Christian Democrat Union (CDU) and the Social Democratic Party (SPD), agreed to lower the solidarity tax on low- and middle-income taxpayers.

France

Wealth is subject to a solidarity tax in France. This wealth tax, called locally as the Impôt de solidarité sur la fortune (ISF) or solidarity tax on fortunes, is paid by around 350,000 families with a net worth of more than €1.3 million. It was initially imposed as Impôt sur les Grandes Fortunes (IGF) in 1981, then discontinued in 1986 and reintroduced as ISF in 1988. Residents of France are subject to the solidarity wealth tax, which is collected on all of their assets, both local and worldwide.

Many people feel that the solidarity tax pushes affluent people out flee France or encourages the wealthy to discover methods to avoid paying taxes. The French government decided in 2017 to eliminate the solidarity tax on wealth and replace it with a solidarity tax on property (from January 1, 2018), which will have the same threshold and rate as the ISF but will only be due on property assets—not shares, bonds, or life insurance.

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