Germany's economic slowdown is being...

Editor's note: ...driven by the same policy failures now emerging in high-tax, high-regulation US states: excessive taxation, soaring energy costs, and an expanding bureaucratic state that suffocates productive enterprise. A major survey of German family-owned businesses warns that taxes, labor costs, and regulatory compliance have reached levels that actively discourage investment, innovation, and hiring, with companies increasingly forced to divert resources simply to satisfy administrative mandates. The result is declining competitiveness and capital flight. The lesson for the US is clear: unless tax reform is enacted and bureaucratic power is curtailed, states such as California and Minnesota risk following Germany down the same path of economic stagnation, where government growth comes at the direct expense of private-sector vitality.
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Germany's Family Businesses Warn: Taxes, Energy Costs, And Bureaucracy Are Killing Competitiveness

By Tyler Durden | January 3, 2025

Submitted by Thomas Kolbe

At the turn of the year, the Foundation for Family Businesses, together with the ifo Institute, presented a corporate survey on tax policy and location attractiveness. The result is unequivocal: Germany is too expensive and no longer competitive as a business location.

There is nothing new under the sun. In their year-end Annual Monitor, the Foundation for Family Businesses and the ifo Institute once again went straight to the heart of the matter. A total of 1,705 companies across all sectors and size categories were surveyed on their assessment of current tax policy and Germany's attractiveness as a business location. The evaluation of this corporate panel—1,358 of which were traditional family-owned businesses—turned out to be devastating, as expected.

Overburdened Labor Factor

More than 80 percent of companies perceive the overall tax and contribution burden—particularly in the area of personnel costs, i.e., wage taxes and social security contributions—as far too high. The heavy burden on the employee side is especially criticized by smaller family-owned businesses. It has become increasingly difficult to grant wage increases when the fiscal authorities take the lion’s share and key performers are bled ever more heavily with each pay raise due to the continuous increase in social security contribution ceilings.

This assessment is shared by Professor Rainer Kirchdörfer, member of the Foundation’s executive board, who comments on the study:

"Our new Annual Monitor shows just how much employers and employees are pulling in the same direction. It is precisely the high taxes on labor that paralyze both sides and drain the joy from performance. High-tax Germany has also lost ground here."

Two-thirds of surveyed executives complain about excessive income tax rates. Income tax is particularly relevant for partnerships—and by international standards it is clearly too high. A recurring grievance is also the complexity of Germany's tax system. The familiar quip holds that roughly two-thirds of global tax law literature originates in the Federal Republic. Even if exaggerated, the message is clear: Germany is a bureaucrat's paradise.

Currently, 5.4 million people work in the public sector—around half a million more than five years ago. This despite technological progress, artificial intelligence, and increasing automation of internal processes.

The Bureaucracy Reduction Classic

A tangible reduction in bureaucracy, including tax law, has been overdue for decades. Yet no federal government dares to tackle this hot potato. German bureaucracy has grown too powerful, evolving at all levels into a state within the state. At the same time, policymakers view the public sector as a kind of buffer for a labor market that has slowly but steadily tipped.

As a reminder: over the past three years, German companies have been forced to create 325,000 additional jobs merely to cope with the ever-expanding bureaucratic workload. The state is effectively outsourcing its ballooning documentation, archiving, and compliance requirements to the private sector.

Ranked second and third among entrepreneurs' main points of criticism are rising local business taxes (Gewerbesteuer) and energy-related levies. Both factors are likely to play a significant role in 2026. Municipal budgets, paralyzed by a cumulative deficit of €35 billion last year, are virtually screaming for sharp increases in local business tax rates.

This threatens to trigger a tax-driven recessionary spiral initiated by local governments seeking short-term relief—particularly in regions hard hit by the industrial downturn, such as the automotive hubs of Stuttgart, Ingolstadt, and Wolfsburg.

Additional Pressure from Energy Levies

As of January 1, 2026, under the Fuel Emissions Trading Act (BEHG), the CO₂ price corridor will rise to between €55 and €65 per ton. This represents another substantial erosion of Germany’s economic substance, as it struggles to keep energy-intensive production in the country amid intensifying competition with China and the United States.

Please go to Zero Hedge to continue reading.

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The BRICS countries are leaving Germany in the dust:

BRICS expands to 56% of world population, 44% of global GDP: Vietnam joins as partner country

Industrial production of ships in Russia and China are booming:

Russia to pump over $6B into shipbuilding as part of big plan to revitalize its maritime industry

China sanctions five US units of South Korean ship giant Hanwha

And while China, Russia and the BRICS countries are pulling in most of the world's manufacturing production with hard industries, what does New York have to offer?