* Strong tax revenues, economic growth clear way for cuts
* Critics say bracket creep "picks wage-earners' pockets"
* Germany unusual in not indexing its tax brackets
By Erik Kirschbaum
BERLIN, April 28 Germany, flush with surging tax
revenues and strong economic growth, could lower income taxes in
2016 by eliminating "bracket creep", according to a growing
number of voices in Angela Merkel's right-left coalition.
Lawmakers from the chancellor's Christian Democrats and the
centre-left Social Democrats (SPD) said there should be scope
for doing away with a tax code rule that income tax brackets are
not adjusted for inflation.
Unlike major economies such as the United States, Britain
and France, thresholds in Germany's progressive tax system are
not automatically adjusted - something the Organisation for
Economic Cooperation and Development (OECD) has urged it to
address via the introduction of index-linked tax brackets.
Critics complain the current system "picks wage-earners'
pockets" by hoisting them into higher tax brackets as their
earnings rise. But government budgets have long relied on the
extra funds it brings - up to four billion euros a year.
Increasing numers of conservative and SPD politicians now
see scope to reduce it with the federal government on track for
a balanced budget in 2014 for the first time in 40 years.
"It's conceivable that we could have a reform next year or
in 2016," said Volker Kauder, CDU parliamentary floor leader.
The latest talk of cutting "cold progression", as it is
called, was fuelled by Finance Minister Wolfgang Schaeuble
telling Der Spiegel magazine this weekend he would not block tax
reductions if there were room in the budget.
COALITION PARTNERS AGREE
Merkel's SPD coalition partners have until now insisted any
cuts must have matching financing. But their leader, Economy
Minister Sigmar Gabriel, said on Monday cutting cold progression
"ought to be possible within the next four years due to the
rising tax revenues".
The clamour for tax relief has grown since last week's news
that the tax take hit a record 55.36 billion euros in March.
"We need to take advantage of any and all available
financial breathing room ... for cutting 'cold progression',"
said Mike Mohring, a CDU leader from Thuringia coordinating
financial issues between the federal and state governments.
Bild newspaper reported on Monday that CDU leaders are
working on a plan to eliminate bracket creep gradually in a
series of small annual steps linked to the inflation rate.
"Cold progression could be eliminated in two steps - on
January 1, 2016 and on January 1, 2018," Christian Baldauf, a
CDU executive board member, told the newspaper.
Many conservatives would like to see the tax cut take effect
in 2016 ahead of important regional elections in states that the
SPD or their erstwhile Greens allies rule: Baden-Wuerttemberg,
Rhineland-Palatinate, Berlin and Mecklenburg-Vorpommern.
Der Spiegel magazine calculated that a single person who
earns 40,000 euros per year and gets a 2 percent pay rise could
see net income actually fall due to bracket creep, which would
result in an increase in taxes of 3 percent.
(Reporting by Erik Kirschbaum; Editing by Stephen Brown and Tom