What Is a Solidarity Tax?

A solidarity tax is a government-imposed tax that is levied in an attempt to provide funding towards theoretically unifying (or solidifying) projects. The tax acts in conjunction with income taxes and places an additional burden on taxpayers, including individuals, sole proprietors, and corporations.

Key Takeaways

  • A solidarity tax is an additional tax levied by a government to fund socially unifying activities or projects.
  • Examples may include a surcharge on gasoline to fund education or roads, or additional federal income tax to fund war efforts.
  • Solidarity taxes are most often intended to be short-term funding solutions, although certain wealth taxes have remained in effect for prolonged periods.

How Solidarity Tax Works

Solidarity tax collected by the government helps to fund projects aimed at unifying the public on one or more specific goals. The tax is paid in addition to personal or corporate tax and is generally calculated based on a percentage of the tax bill. In some cases, it is a flat rate.

Solidarity taxes may be invoked during times of war or undertake great works, both of which galvanize a population and its patriotic spirit. Solidarity taxes may take several forms including one-time assessments, a surcharge on income taxes, a surcharge on sales or VAT taxes, or other methods of collection. Most often, solidarity taxes are intended to be short-lived and not become permanent, though this is not always the case.

Examples of Solidarity Taxes

Germany

The solidarity tax has been considered or introduced in several nations, most notably Germany, whose solidarity tax was utilized to help rebuild eastern Germany. The country introduced a solidarity tax with a flat rate of 7.5% on all personal income in 1991 after East and West Germany were joined together again. The purpose of the tax was to provide capital for the newly integrated administration. It was implemented and collected for only a year as it was only meant to be a short-term program.

However, in 1995, the government re-introduced the tax to help fund economic development in the east of Germany. After the rate was reduced in 1998, taxpayers must pay a 5.5% surtax of their yearly corporate and individual tax bill towards the solidarity tax. Since the solidarity tax was intended to be a short-term surcharge or supplementary tax on top of regular income taxes, the long-term German solidarity tax has been under scrutiny for being unconstitutional.

In 2018, talks of a solidarity tax cut between the country’s two main political parties, the Christian Democrat Union (CDU) and the Social Democratic Party (SPD), to reduce the solidarity tax on low- and middle-income taxpayers were agreed on.

France

In France, a solidarity tax is levied on wealth. This wealth tax, locally known as Impôt de solidarité sur la fortune (ISF) or solidarity tax on fortunes, is paid by an estimated 350,000 households with a net worth of more than €1.3 million. It was first implemented in 1981 as Impôt sur les Grandes Fortunes (IGF), terminated in 1986, and re-introduced as ISF in 1988. Residents of France for tax purposes are subject to the solidarity wealth tax, which is levied on all their assets—local assets and global assets.

The solidarity tax has been criticized by many who believe it drives away the wealthy from France or incentivizes the rich to find ways to evade taxes. In 2017, the French government agreed to abolish the solidarity tax on wealth and replace it with a solidarity tax on property (from January 1, 2018), which will have the same threshold and rate as ISF but will be payable only on property asset—not shares, bonds or life insurance.