Tax policy has long been a central topic in German political discourse, and even after the 2000 Tax Reform, it remains a priority for all political parties. This study focuses on Germany's two largest federal tax revenue sources: income tax and value added tax. It aims to provide a comprehensive overview of the income tax system, addressing both tax liabilities and deductions. While the progressive nature of the income tax schedule is widely recognized, the distributional effects of tax deductions are often overlooked. The study demonstrates that solely considering tax liabilities as a measure of progression is misleading. It investigates how both tax liabilities and deductions affect various income definitions and household types across the income spectrum. Additionally, the value added tax faces criticism from academics and policymakers, particularly regarding tax losses and efficiency issues arising from dual tax rates. This study explores the distributional effects of a proposed value added tax reform, specifically the partial elimination of the reduced tax rate, by assessing the additional financial burden on households at different income levels across various regions.
