Simulator­Plus

• (1) Start-up capital/ basic inheritance for 20 year olds

  Giving young people a lump sum to start their working lives is seen as a good way of reducing inequality by put-ting many people in a better position (cf. for this and all following instruments: Bach, S., Grabka, M. M., & Adam, M. C. (2021). Ungleichheit in Deutschland – Politikmaßnahmen zur Trendumkehr. Forum New Economy Working Papers)

  The simulation assumed that such a starting capital (or basic inheritance) was paid out by the state each year to all 20 year olds in a cohort. The simulated options ranged from 10,000 to 100,000 euros. While there are no special requirements to receive the money (apart from belonging to the co-hort), in the variant simulated here the money can only be spent for specific purposes, such as the acquisition of property, retirement provision or education or training. This means that the money cannot be spent freely, as assumed in the simulation. Instead, there is a return on the full amount of the start-up capital. The income from the initial capital is freely available as income.

  A property inheritance could be financed by a higher inheritance tax or other taxes on high assets. Family work to care for children, the elderly or the disabled could also be subsidised by a basic inheritance. Such a development is sometimes referred to as a 'life chances credit' or 'opportunity account'.

• (2) Social Dividend

  Germans like to save a lot, but accumulate very little wealth. Many people in Germany lack financial education or the confidence to invest in higher-return and diversified investments such as shares, bonds or funds. Against this background, the idea arose that the state should take this into its own hands for its citizens with a sovereign wealth fund that would pay out an annual social dividend to all adults in the state. Such a sovereign wealth fund could use the yield differential between the returns on equities and real estate and the government's refinancing costs to generate substantial surpluses in the longer term. Start-up funding could come from additional revenue from a wealth or inheritance tax, other budget surpluses, new borrowing or the gold reserve.

  In the simulation, variants between 100 and 2,500 euros per year were calculated, the maximum value being based on the example of the Alaska Fund (where up to 2,000 US dollars were distributed depending on the in-come). In the model on which the simulator is based, the dividend is paid tax-free, i.e. without being offset against government transfers. It therefore increases the net worth of the recipients. In contrast to seed capital, there are no conditions attached to the use of the money and it can be spent freely.

• (3) Inheritance tax

  In an international comparison, Germany taxes the earned income of the middle class and higher earners quite heavily. By contrast, we are a low-tax country when it comes to wealth. In the simulations of different variants of inheritance tax under current law used here, it is assumed that only adult children and stepchildren receive an inheritance or gift. It is assumed that the tax-free amount is increased by 25% to EUR 500 000. Inheritance tax is levied as a lump sum. Effective tax rates between one and 30 per cent were tested as variants.

  The simulations show that over the whole range of possible tax rates there are no noticeable effects on the actual distribution of wealth. This would not change even under the extreme assumption of a 100% inheritance tax. According to additional test simulations, significant effects would only appear after a period of 40 years.

  The fact that the effects of an inheritance tax on the distribution of wealth are small is partly due to the fact that only 30 per cent of people inherit or receive a gift during their lifetime - 70 per cent get nothing. In turn, most of the 30 per cent are already over 60 years old and are no longer building up assets, but are using up their savings. For a larger proportion, inheritances are again below the tax-free threshold, so they would not be taxed. Finally, inheritances counteract further concentration to some extent, as they naturally preserve previous wealth struc-tures and are inherited within families.

  The simulations did not take into account the effects of a possible abolition of the inheritance tax exemption for business assets. Whether this would have significant additional effects cannot be reliably modelled due to a lack of experience, even with regard to the side effects on employment. Experts such as Stefan Bach estimate that the current tax revenue could be doubled in the long term through minimum taxation of high business transfers and the reduction of tax concessions.

• (4) Wealth Tax

  No wealth tax has been levied in Germany since 1997. This was not the case in the past: in the 1950s and 1960s in particular, the wealth levies as part of the equalisation of burdens of 1952 and the wealth tax had a considerable macroeconomic impact and are likely to have triggered a certain redistribution effect. A prerequisite for the reintroduction of wealth tax would be a revision of the valuation regulations.

  In the simulation, the effects of an annually levied wealth tax with a tax-free amount of one million euros were simulated. This is intended to concentrate the wealth tax on very wealthy individuals. No evasion effects were assumed. Different rates were tested as variants in a range between the commonly proposed one and ten per cent wealth tax.

• (5) Capital tax

  Capital gains are subject to a uniform tax rate of 25 per cent in Germany. Since 2023, the tax-free allowance has been 1,000 euros per year (until 2023: 801 euros). The simulation calculated how the distribution of assets would change if all capital gains were subject to withholding tax (no assessment option). Tax rates of between 25 and 50 per cent on capital income were tested as variants.

  As with inheritance tax, the simulations for capital gains tax do not show any measurable effects on the percent-age distribution of assets. As in the base scenario, concentration would increase. The fact that such a tax covers income from financial assets (interest, dividends), but not property and business assets, which are held disproportionately by the top wealthy, plays a role here.