#12/25 Taxes and Giving

Dear Readers,

It should be so simple: Giving begins after paying taxes. First the duty, then the pleasure, one could say.

But it's not that simple. In every interview, in every political discussion, I am asked if our taxes are fair. And I often hear from conversation partners that they would get more involved, but they already pay so much in taxes.

Time for facts. Because something is wrong here. I compared OECD countries with regard to tax ratios, social spending, and donation rates. The result is: There is no correlation. In countries with lower taxes, people do not donate more, and in countries with higher taxes or social spending, engagement is not lower. The effective taxation of wealth in Germany is actually lower than in most comparable countries. And of all things, foundations play a central role in this.

Therefore, also: Time for honesty. Because the foundation is actually supposed to be the instrument with which our society organizes generosity. In reality, however, only half of new foundations established are even charitable. The other half are mostly inheritance tax avoidance instruments.

An entire “legal-philanthropic complex” has emerged for this purpose, a systematic web of political lobbying and the interests of service providers, which Chuck Collins termed the “Wealth Defense Industry” in 2021 (more on this in the conversation with Iris Brilliant in episode 42 of “Das Neue Geben”). To put it clearly: The mixing of charity and tax avoidance harms the act of giving.

There will be no new way of giving without a debate on what wealth must contribute to the community - before it can then make a voluntary impact beyond that. I have an optimistic vision for this, at the very bottom of this newsletter.

Yours, Felix

PS On social media, nothing works without selfies and clickbait headlines. That's how it is in the attention economy of algorithms. That's why I love the newsletter format all the more - and am launching a weekly English briefing on Substack.

A number that sticks in your mind: Zero.

(From the broadcast ARD Plusminus on the topic “Charitable foundations - when founders have to pay extra” from August 6; on September 1, a TV report by MONITOR on the topic of family foundations will be available on YouTube, and a week later it will air on ZDF.)

That is the target number towards which the business of foundations is geared. Zero percent inheritance tax.

How? Heirs do not receive the assets directly, but are instead set up as so-called beneficiaries of a “family foundation”. In this way, they benefit from distributions from the foundation's assets or profits from company shares owned by the foundation. The tax can thus be pushed close to zero, because instead of checking the “neediness” (as it is called) of the heirs, it takes place at the foundation level. Company shares are considered privileged and are not taken into account.

Sounds complicated? In the end, it's simple: On multi-million and multi-billion transfers using such foundations, 99.9% of the tax was avoided (data 2021-2023).

Although these foundations are actually supposed to pay a so-called inheritance substitute tax every 30 years, exemptions and allowances also apply here - and non-privileged assets can be distributed or restructured on the key date.

To save so much money, people spend a lot of money. Lawyers charged €150,000 for an entrepreneur I spoke to during my book tour in Sylt. In the end, he decided against the proposed double foundation (where a charitable foundation would have provided an additional tax benefit).

And charitable foundations can also be a good business for service providers. In the ARD plusminus TV report, I explained why the perpetual foundation model only fits a few types of assets - and becomes a trap for many people's money. If you prefer to read about it in detail: In my current Handelsblatt column, I compare the traditional foundation to a marriage without the possibility of divorce - and point out alternatives.

I think it is time to shed such intense media light on the “business of generosity” - and I look forward to the debates about it. Because critical inquiries can only benefit engagement with private assets that is truly oriented towards the common good.

A person who inspires me: Silja Graupe

Silja Graupe is a university founder; she call herself a financial philosopher. She is also terminally ill. Only a few weeks ago she learned that she has much less time than she thought to realize her life's dream: to finance the Cusanus Hochschule für Gesellschaftsgestaltung in Koblenz so that it can offer a transformative educational program on a permanent basis - one that teaches the next generation a new way of handling money and resources. For this purpose, she has also become an online donor herself and has already raised half a million euros.

Janina Breitling and I have just celebrated the 50th episode of our podcast “Das Neue Geben” with the wonderful Mo* Asumang as a guest. But the conversation with Silja Graupe stands out for me among the many inspiring encounters of recent weeks. That's why I recommend this episode in the newsletter, which leaves you both speechless and optimistic at the same time.

An idea to think further: Wealth Summit

At the end of July, first the photo of men at the “Investment Summit” in the Chancellery caused a stir. And then it became even more complicated, as has now been well researched.

This prompted me to make a spontaneous proposal (LinkedIn, TikTok) that could perhaps turn into something more: How about a meeting with the actual owners of wealth?

The vision: Germany could become the leading location where private money can best unfold for the future of society.

And that is not achieved with taxes that are as low as possible, but perhaps with a different model: A reformed and long-term stable inheritance tax at a lower nominal level, which is, however, actually paid effectively by all taxpayers. And foundations commit to investing serious additional funds into the common good beyond that.

If the word hadn't become impossible by now, one could call it a deal, but one that actually moves billions and resolves a conflict.

Whether at a wealth summit in the Chancellery or in another form - a new discussion is urgently needed because time is pressing. The political center owes a solution not only to the Federal Constitutional Court, but also to the voters, so that anger over wealth inequality does not boil over in the next election.

PS Contrary to the cliché, Switzerland is far more restrictive than Germany when it comes to family businesses. The conflict is raging there: in autumn, a wealth tax referendum is up for a vote, while wealth defenders campaign for the same tax-free asset transfer solutions that already exist in Germany.