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Unformatted text preview: he right of municipalities to vary their rates of the taxes on
businesses and land. In particular, it would be feasible (and equitable) to allow states to levy a surcharge (in analogy to
the church tax) on the national income tax collected in their jurisdictions, or preferably, an own tax on the federal income
tax basis. This would be administratively easy to implement, it would render the state’s tax share more visible to the
citizen-voter, and thus strengthen accountability. Of course, the corresponding revenue of this state tax or surcharge
would be immune against applying the principle of solidarity, that is, against any form of interregional redistribution. It
would remain exclusively at the disposition of the state authorities. Of course, the federal government would have to
“make room” for such a state surcharge in order to keep the total tax burden on citizens constant. The realization of this
proposal would require a constitutional amendment not only with regard to allowing the states to levy such taxes; it
would also affect the present 50:50 partition rule for the vertical distribution of income taxes.
If such right to levy their own taxes will continue to be denied to German states, this could lead to serious pressure to
levy non-tax revenue—for instance student fees to finance education—which would undermine interregional solidarity in
other ways. Moreover, in the era of the Internet, there are new possibilities of levying charges for public services
according to the quid pro quo principle. It implies that new forms of raising own revenue are likely to emerge and
expand. This would entail a continuing dilemma: If such extra revenue will remain out of the equalization mechanisms as
established now, there will be a continuing debate on what the constitution means with “current revenue”—the basis for
31 This line of criticism was opened up in the mid-70s by Scharpf, Reissert, and Schnabel (1976). See also Rosenfeld (1999).
Federal grants as a last step of equalization make sense only if they are understood to compensate for temporary, special burdens—as in the
Grundgesetz. This is true for the transfers destined to alleviate the special situation of the new states. These transfers should be retained as a last
(fourth) step in correcting state fiscal capacity. However, they should definitely, and anticipatorily, be phased out over time in order to underscore their
temporary nature. 51 Commission on Fiscal Imbalance equalization. The “poorer” states will put pressure on the “richer” to have such revenue included in the mechanics of
interregional solidarity. If such revenue would be integrated in the interregional solidarity programs however—in other
words: the states would forego this revenue that was derived from taxing their own citizens on the understanding that it
would benefit the regional community—, this would eternalize the lack of incentives to mobilize own resources and to
manage regional budgets more efficiently at the state level. Given the history of...
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