Goetz Aly

Hitler's Beneficiaries

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. 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. 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.

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. On January 1, 1942, the corporate tax on businesses earning more than 500,000 reichsmarks was raised again, to 55 percent, resulting immediately in a 'drastic reduction in business incomes.' Thanks to the hikes in corporate taxes, the Reich increased its revenues in the three fiscal years between 194 land 1944 by more than 4 billion marks.

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.' In 1942, a Berlin hotel owner and wine wholesaler named Lorenz Adion was paying taxes equivalent to 40 percent not of his firm's profits but of its annual turnover of 5.7 million reichsmarks.

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 over-time 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. Goring's financial adviser Otto Dormer 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.' Meanwhile, price and rent increases remained strictly forbidden.

The trend toward soaking businesses and the wealthy gained further 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. 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. 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 todays 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.'

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. 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.' 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.'

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 rebuilding 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.

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.' The additional money taken in from property owners amounted to 18 percent of domestic war-tax revenues in the fiscal year 1942-43.

The process of deciding this matter is a good example of what the historian Hans Mommsen calls the cumulative radicalization of the Nazi state. Mommsen sees the character of the Third Reich as being shaped by competition among officials in various government bureaucracies. Civil servants, in effect, pushed one another to become more radical. The Nazi leadership exploited this dynamic by defining only what they did not want and putting pressure on their subordinates to achieve maximum results in the shortest possible time. Civil servants were encouraged to use their administrative imagination—they neither needed nor were given concrete instructions. In the case at hand, the Nazi leadership at no point even considered legislation that would have placed a comparable burden on working people. On the contrary, discussions of the property tax were framed by the general principle that materially better-off Germans were to bear a considerably larger share of the burden of war than poor ones. In this, the decision makers were following the lead of Goring, who as early as November 1938 had suggested financing the arms buildup with the help 'of a one-time contribution from the wealth' of affluent German citizens.