The German tax landscape is once again facing reform in spring 2026. The coalition partners, CDU and SPD, are debating the future of income tax, including the distortion in the middle of the income tax bracket curve, the basic exemption, the top income tax rate, the solidarity surcharge, and also the tax treatment of digital assets.
Traditionally, such discussions in Germany tend to be very one-sided and focus solely on tax revenue itself: The call to lower taxes is therefore reflexively followed by the question of how the tax relief could be offset by tax increases elsewhere (VAT, inheritance tax, wealth tax, or higher taxes on “high earners”). Unfortunately, virtually no one mentions that offsetting the tax cuts could also be achieved by reducing excessive government spending.
Tax policy dispute: Parties advocate opposing models
The “tax policy battle” is being waged between the heavyweights of the coalition partners. On one side is Lars Klingbeil (SPD), who has declared tax reform a matter of social destiny. He calls for placing a heavier burden on “strong shoulders” through higher tax rates to create room for tax relief for the working middle class.
Opposing him is Carsten Linnemann (CDU), who, unsurprisingly, brands any form of tax increase as “economic poison.” He wants to create incentives through tax-free overtime and flatten the tax curve for small and medium-sized businesses.
What tax reform proposals are currently on the table?
Based on current trends and public statements by party officials, the following picture emerges:
1. Adjustment of income tax brackets (probability: very high)
There is cross-party consensus on this. The top tax rate is to apply only to higher incomes (approx. EUR 80,000 to EUR 90,000) in order to counteract bracket creep. In our view, this is long overdue. Currently, every euro of income above EUR 69,879 is already taxed at the top rate of 42 percent. It is difficult to describe someone earning this amount as a “high earner” who absolutely must be asked to pay up in order to counteract an unfair distribution of income in society – especially if they are the sole earner in a family with children.
2. Shift to a flat-rate withholding tax for crypto (probability: high)
Signs of a systemic change are mounting. The taxation of cryptocurrencies is set to be reformed, moving away from the complicated “private sales transactions” toward a flat-rate withholding tax (26.375 percent, including the solidarity surcharge). This would significantly reduce the burden on tax authorities, as crypto gains would then be treated like stocks. Taxation would thus occur automatically at the source via a withholding tax on capital gains. Tax-free capital gains after a one-year holding period would therefore be history. However, protection rules for coins already purchased are conceivable and, in our view, constitutionally required.
3. Increase in the top tax rate to 47–49 percent (probability: low to moderate)
Due to resistance from the CDU/CSU, an increase is currently rather difficult to implement. However, initial statements to the contrary from within the Union, which do not wish to rule out an increase per se, are raising eyebrows. An increase does not seem entirely unthinkable even on the part of the Christian Democrats, especially if it would eliminate the solidarity surcharge. High earners face a nasty surprise in this regard. The pressure to “switch” to passive income, set up holding structures, or even consider moving abroad therefore remains high.
No tax reform in sight for now
A tax reform that would keep entrepreneurs and high earners happy and in the country is not in sight. The government’s financial situation is (through its own fault) too strained for any major moves in this direction to be expected. There is clearly a lack of courage to pursue the obvious solution: keeping taxes stable while reducing government spending.
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Withholding tax and the end of the holding period: What lies ahead for crypto investors?
Unsurprisingly, there are calls for a withholding tax on crypto gains. With the technical implementation of the EU’s DAC8 Directive, the government already has the tools for oversight. It has been law in Germany since January 1, 2026. Total transparency has thus already been achieved: Crypto exchanges automatically report all transaction data to the Federal Central Tax Office. The “transparent crypto investor” is the foundation upon which the SPD’s current reform proposals – to automatically tax crypto gains via withholding tax – can be built. These proposals are, in essence, merely the logical next step.
Whether the one-year holding period will actually be eliminated now, however, likely depends on the final negotiations within the coalition. In any case, the likelihood that tax exemption after just 12 months will eventually give way to a simplified withholding tax system is higher than ever before.
WINNHELLER provides advice on crypto and taxes in Germany
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