The cold progression describes the effect that people earn more nominally through inflation and wage increases, but don’t really gain in purchasing power in real terms. This happens when tax allowances and tariffs are not adjusted to the rising cost of living. As a result, even moderate income increases can lead to taxpayers in higher tax ratesslip, which not only increases the financial burden, but also reduces the incentive to increase performance. It also becomes clear that the cold progression hits the middle class in particular, as it becomes particularly vulnerable to tax increases without first experiencing significant benefits from their income.
Causes and emergence of cold progression
A decisive factor in the emergence of cold progression is the inadequacy of the tax system, which has not been fundamentally reformed for years. Tax allowances often fall short of wage developments, while tariffs are not inflation-adapted. This results in automatic tax increases that imperceptibly burden citizens. Especially theMiddle class is found in a quandary: it shows a growing work effort to maintain its standard of living, but at the same time has to pay higher taxes, which leads to increased dissatisfaction. This makes it clear that the discreet transfer of the tax burden in the shadow of inflation not only creates financial pressure in the long term, but also the confidence in theTax system undermines, as many citizens feel that their efforts are not being rewarded fairly. This development has far-reaching social consequences and urgently requires a political debate on the mechanisms of cold progression.
Effects of cold progression on taxpayers
The effects of cold progression on taxpayers are multi-layered and go far beyond the mere financial burden. On the one hand, the increasing tax burden means that the purchasing power of citizens continues to fall, which has a negative impact on consumption and thus on economic growth. Companies complain about stagnant sales, since the population has less money for goods andservices has available. This can also endanger jobs as companies are forced to reduce their costs.
Does cold progression cause increased social inequality?
In addition, cold progression ensures increased social inequality within society. While wealthier layers often have appropriate means to cushion inflation effects, the middle class is hit particularly hard. This is double the burden: Not only does she have to pay higher taxes, but also has the creeping oneto fight the loss of their purchasing power. The emergence of an ever-increasing gap between different income groups is therefore inevitable.
Persistent ignorance of cold progression
Politically, the ongoing ignorance of cold progression leads to a loss of trust in the government and the entire tax system. Citizens feel alienated from the decisions of politics and are increasingly skeptical about promises of reform. Ultimately, this frustration can only be met with sweeping reforms that ensure fair taxationand give people back the feeling that their achievements and efforts are being recognized.
