Hitler's Beneficiaries: Plunder, Racial War, and the Nazi Welfare State (10 page)

By 1943, a resigned Bernhard Benning was forced to acknowledge that in planning a war economy “no energetic measures can be taken in the lower-income brackets, which would be of particular interest to exploit [as revenue sources].”
⁸⁹
Reich economists wanted to tax working-class Germans to curb excess consumer spending and inflation and to decelerate the pace at which war-related state debt was growing. In the later phase of the war, Schwerin von Krosigk sarcastically characterized his own suggested tax hikes, motivated by financial realism, as “tax Bolshevism.”
⁹⁰
He was repeatedly told by intimates of Hitler’s and by the Führer himself that “unfortunately it was too late” for that. Had he initiated such measures “immediately after the war began or just after France was defeated,” his rivals hypocritically informed him, “everything would have been fine—but the auspicious moment has now passed for good.”
⁹¹

By contrast, in May 1943, Joseph Goebbels noted with satisfaction that new tax regulations had been postponed indefinitely.
⁹²
Nonetheless, he took the precaution of insisting a short time later that “the Führer [together with the head of the German Labor Front, Robert Ley] be kept apprised of the mass psychological implications of taxation plans.” The people, he wrote, “cannot now accept a new burden (Stalingrad—Tunis—reduction in meat rations—aerial attacks—evacuation).” Under pressure from the party leadership, Deputy Finance Minister Reinhardt turned against von Krosigk, his superior, demanding that discussion of tax increases had to cease “since it is causing unrest among the populace.” In light of “the current ebb in the public mood,” Reinhardt wrote, all measures “that could further worsen morale” were to be avoided.
⁹³

With the fall of Mussolini in the summer of 1943 and the Italian government’s declaration of war on Nazi Germany that October, Goebbels called for urgent measures to prevent the German populace from rising up against the regime. “National Socialism,” he wrote, “must undergo renewal. We have to bind ourselves more socialistically than ever before to the people. The people must be convinced that we are their fair and generous administrators.”
⁹⁴
That effort was already being made. In late September, the chief of the Reich Chancellery, Hans Lammers, informed the finance minister that Hitler and Göring believed a tax increase “would be best avoided given the current situation.”
⁹⁵
By the e43 f the year, von Krosigk commented dryly: “One can always find reasons tax increases aren’t right. In the spring or after a triumph, the argument is made that we shouldn’t jeopardize the upsurge in public sentiment that has arisen from the season or from delight at victory. In fall or after military setbacks, it’s that the public mood shouldn’t be depressed any further than it already is, with winter approaching or the bad news arriving from the front.”
⁹⁶
At a 1944 conference of finance experts, Benning exclaimed in frustration: “Let me remind you that since the beginning of the war incomes below 3,000 reichsmarks have never even been officially recorded.”

In mid-1944, the finance minister believed he had persuaded Hitler to approve a number of indirect tax measures that had been in the planning stages for about a year and a half. They included higher duties on tobacco products and spirits as well as new taxes on movie and rail tickets. Everyday necessities were explicitly declared off-limits.
⁹⁷
Lammers called on the minister to present a proposal for increasing tax revenues by an additional 3.4 billion reichsmarks. But Hitler put off making a decision for several weeks, only to inform the Finance Ministry that such measures were unworkable in light of the military situation. Although the financial state of the Third Reich drastically deteriorated in the latter half of 1944, Goebbels continued to threaten the Finance Ministry with a supplementary increase in state pensions. Von Krosigk’s suggestion that such an increase could be funded by levying a “general solidarity contribution,” which could be justified by the need to take care of wounded war veterans, met with a cool rejection from the propaganda minister.
⁹⁸

In February 1945, after military defeats had sealed off nearly all of Germany’s foreign sources of revenue, von Krosigk made one final attempt at increasing taxes. Even Goebbels seemed receptive, writing in his diary, “We need to get our feet back on the ground on the money issue.” But he later changed his mind. With the Red Army crossing the Oder River and American troops advancing on Würzburg, Goebbels expressed the collective unwillingness of the Nazi leadership to risk alienating the German people. “Krosigk has again submitted his plan for tax reform,” he wrote. “His draft is too inequitable for me. It’s based mainly on excise taxes. Income taxes, on the other hand, aren’t given any consideration. But excise taxes almost exclusively affect the broad masses and for that reason are very unpopular. They represent a grave injustice that we cannot afford at the present juncture.”
⁹⁹

The extreme populism of Nazi Germany’s wartime tax policies is underscored by the government’s readiness to tax business and the country’s wealthy. Under the requirements of the KWVO, German companies were compelled as of September 1939 to hand over all additional war-related profits to the state. Various loopholes, though, basically rendered these statutes ineffective until 1941, as evidenced by the fact that most companies did not need to apply for loans to finance war-related expansions of their production capacity. The Nazi leadership realized it had to act quickly if it hoped to collect the lost revenues.

On January 1, 1941, responsibility for enforcing the KWVO’s provisions on corporate taxation was shifted from the Price Control Commissioner’s Office to the Finance Ministry. Administrators there drastically reduced the exemptions that companies were allowed to claim in calculating their profits. The goal was to achieve “more thorough taxation of so-called anonymous capital [a pejorative term for investment funds] and of the tremendously increased income occasioned by the war.” The change had its desired effect—the number of companies applying for credit shot up in 1942.

The economics division of the Reichsbank noticed the growing demand for loans and traced it to the “increasing appropriation of wartime profits.” In another blow to businesses, the Wehrmacht reduced its advance payments for armaments and increasingly took its time settling its bills.
¹⁰⁰
The effect was gradual. Wartime profits, which had reached 750 million reichsmarks in the fiscal year 1941–42 and 1.3 billion in 1942–43, declined only a few percentage points the following year.
¹⁰¹
In response to isolated complaints from manufacturers about overtaxation, the government set a cap for individual companies of 8 percent of total corporate income in 1943.
¹⁰²

Businesses suffered more serious effects from the wartime surcharge on corporate taxes instituted in mid-1941. Applying to all corporations with annual returns of more than 50,000 reichsmarks, the surcharge effectively raised the tax on profits, which had already been hiked to 40 percent before the war, to 50 percent.
¹⁰³
On January 1, 1942, the corporate tax on businesses earning more than 500,000 reichsmarks was raised again, to 55 percent,
¹⁰⁴
resulting immediately in a “drastic reduction in business incomes.”
¹⁰⁵
Thanks to the hikes in corporate taxes, the Reich increased its revenues in the three fiscal years between 194land 1944 by more than 4 billion marks.
¹⁰⁶

Many business leaders had had enough. The owner of J. F. Lehmann, a medium-sized publishing house specializing in medical textbooks and treatises on German imperialism and race politics, complained in 1942: “Doing more business is a double-edged sword. Ultimately it decreases your earnings since all profits in excess of peacetime levels have to be appropriated and the warehouses gradually become empty.”
¹⁰⁷
In 1942, a Berlin hotel owner and wine wholesaler named Lorenz Adlon was paying taxes equivalent to 40 percent not of his firm’s profits but of its annual turnover of 5.7 million reichsmarks.
¹⁰⁸

Between September 1939 and March 1942, the Reich recorded some 12 billion marks in revenue from war taxes of various kinds. Only the additional duties on tobacco, spirits, and beer, which earned the state 2.5 billion marks, affected the wallets of the majority of Germans. A further quarter of a billion marks came from the temporary suspension of overtime and other labor pay. The remaining 9.25 billion reichsmarks—or 75 percent of the increased domestic revenue—were provided by businesses and high-income earners. Göring’s financial adviser Otto Donner commented: “The rapid progression in income taxes, in conjunction with the corporate tax, [ensures] a proportionally large contribution from high incomes to the needs of state.”
¹⁰⁹
Meanwhile, price and rent increases remained strictly forbidden.

The trend toward soaking businesses and the wealthy gained furthe momentum in the fiscal year 1942–43. The disproportionately large increase in domestic tax revenues that year can be traced to the state’s imposing the so-called real estate inflation tax
(Hauszinssteuer)
. Instituted in 1926, it was designed to spread the burden of inflation to otherwise unaffected property owners. Revenues, which averaged around 850 million reichsmarks annually in the first three years of the tax, went to cover a “substantial proportion” of the costs of state-backed construction of new houses and apartment buildings during the Weimar Republic. For that reason, only already standing structures were affected by the levy, which, in keeping with its aim of public utility, was called the Construction Debt Relief Tax.
¹¹⁰
Revenues from the assessment were allocated directly to local authorities.

To stabilize state finances during the Depression, an emergency decree had been issued on December 8, 1931, ordering property owners to pay the questionable tax in advance. In return, the Weimar government promised that it would be lifted in the future—a promise the Nazis legally abrogated on December 1,1936.
¹¹¹
The 1942 levy required property owners to pay ten years of the tax in advance in a single lump sum. Because property owners were prohibited from raising rents, they alone bore the burden. In addition, the Reich appropriated other revenues that had previously belonged to local authorities. All told the state collected the considerable sum of 8.1 billion reichsmarks (in today’s currency the equivalent of around 100 billion dollars) in additional revenue in 1942–43. The financial newspaper
Bankwirtschaft
hailed the windfall as “a satisfactory result in terms of both limiting consumer spending power and improving the state budget.”
¹¹²

The fact that those affected by the real estate inflation tax had paid 4.5 billion reichsmarks of the levy in cash temporarily throttled the circulation of hard currency.
¹¹³
Representatives of property owners’ associations agreed to the measure because the state again promised to get rid of the tax once and for all. Nevertheless, many property owners feared they would be “fleeced” by government rent controls, compulsory reserve funds, or increases in the basic real estate tax.
¹¹⁴
Indeed, a few months later, Economics Minister Walther Funk announced: “So-called real value assets
[Substanzwerte]
will represent an especially lucrative source of state tax revenue after the war.” And in early 1944, Reich economists began discussing new ways “to better exploit property ownership to cover state debts.”
¹¹⁵
Polemics against landlords continued to appear in party organs such as
Das schwarze Korps
, the official newspaper of the SS. Citing one such article from November 12,1942, the president of the higher regional court in Kassel called for “the introduction of protection, under penalty of law, for upstanding tenants against willful harassment” by landlords who had forgotten their sense of social responsibility. The situation, he added, “was crying out for resolution.”
¹¹⁶

The decision to call in (that is, require advance payment of) the real estate inflation tax had been preceded by a lively debate within the Nazi Party leadership on how best to extract revenues from property owners. Since the start of the war, landlords had been legally prevented from renovating their properties. Nevertheless, rents still included tenant contributions toward reuilding work. Renovation funds held in escrow provided a tempting target. Several gauleiters proposed an across-the-board reduction in rents and set about popularizing the idea in the press. But the finance minister blocked the proposal, arguing that such a move would create excess demand and thus inflation. In the end, it was decided instead to levy the special tax on property owners.
¹¹⁷

The spirited negotiations over how much the state should demand in advance payments illustrate the emphasis segments of the Nazi state placed on social policies that appeared just and equitable. Initially, in December 1941, officials at the Finance Ministry suggested that the advance payment should be five times the normal annual property tax assessment. That would have raised about 4 billion reichsmarks. But at a subsequent interministerial conference, Interior Ministry representatives pleaded for a “somewhat” higher rate. The Prussian Finance Ministry proposed raising the rate to eight times the normal annual sum, prompting the Reich commissioner for price controls to complain of “a massive handout to property owners.” Representatives of the Labor Ministry and the Wehrmacht, on the other hand, warned against making the burden too great. In January 1942, Finance Ministry officials said they would agree to a contribution of seven times the annual norm, but the representative of the German Labor Front, Paul Fleischmann, insisted on nothing less than a ninefold levy. The discussions dragged on through the winter, with representatives from Hitler’s Party Chancellery continuing to warn against “giving too much away to property owners.” At the end of March, Prussian finance minister Johannes Popitz, secretly a member of the anti-Hitler resistance, proposed bumping up the contribution to twelve times the annual norm. The Party Chancellery let it be known that Martin Bormann “would be in agreement with a tenfold contribution,” whereupon Schwerin von Krosigk put the matter to rest: “The proposal is adopted.”
¹¹⁸
The additional money taken in from property owners amounted to 18 percent of domestic war-tax revenues in the fiscal year 1942–43.