The tax initiative of the middle party wants to abolish the disadvantages for married couples, but receive advantages. The enforcement mechanism of the initiative gives concrete indications of the financial consequences.
A new popular initiative is intended to eliminate the tax penalty for marriage.
Two popular initiatives want to eliminate the “marriage penalty” in direct federal taxes. One of the initiatives was launched primarily by FDP women and calls for individual taxation. The specific implementation is left to Parliament. The initiators submitted their request in September with almost 113,000 certified signatures. Partly in contrast to this is the popular initiative launched by the Mitte party on Tuesday. This applies in particular to the first sentence of the initiative text: “The income of a married couple is added together.” According to the initiators, this excludes individual taxation. However, the declared main goal of the center – abolition of the tax marriage penalty – also coincides with a goal of the originators of the initiative for individual taxation.
However, the center party is not concerned with equal treatment for married and cohabiting couples. This is illustrated in the second sentence of the initiative text: “The law ensures that married couples are not disadvantaged compared to other taxpayers.” In plain language, this means that preferential treatment for married couples should remain permissible. According to Declarations According to the 2019 Federal Council, an estimated 700,000 married couples are significantly disadvantaged compared to cohabiting couples when it comes to direct federal taxes, and around 380,000 married couples are significantly favored. Married couples with two wage earners and high incomes are particularly disadvantaged – in particular because of progressive taxation. Single-earner married couples are particularly privileged – namely because of the cheaper married couple rate.
Long live the asymmetry
The fact that the center party wants to eliminate the tax disadvantages for married couples, but wants to leave the disadvantages for cohabiting couples, is also reflected in the implementation mechanism of the initiative text. This provides for concrete implementation if Parliament has not cast the main text of the initiative into law within three years of its adoption. In this scenario, the Federal Council would have to implement the initiative via ordinance.
This implementation by the Federal Council would have to be based on the “alternative tax calculation”: the tax amount would be calculated on the basis of normal joint taxation and also on the basis of separate taxation for spouses – and the lower of the two tax amounts would apply automatically. A marriage tax penalty would thus be eliminated in each individual case, and a marriage tax bonus would remain in each individual case. If the initiative were to be adopted, this enforcement mechanism would be of great political and practical importance, since Parliament would know that unless another variant was agreed, the implementation would automatically take place.
The financial consequences can be estimated to some extent. The Federal Council had already proposed such a model with an alternative tax calculation in 2018. That reform proposal also included the basic rate for unmarried parents and not the cheaper parent rate. However, that proposal by the Federal Council was not able to win a majority at the time.
High earners benefit
The financial implications made the proposal at the time politically vulnerable. This now also applies to the new Mitte initiative. According to the Federal Council’s estimates based on figures for 2015, the reform with an alternative tax calculation would have meant a drop in revenue of almost CHF 1.5 billion per year for the Treasury; Of this, around CHF 250 million would have been borne by the cantons (the cantons’ share of the direct federal tax) and a good CHF 1.2 billion by the federal government. In the medium term, the tax cut should bring additional gainful employment and thus additional tax base, especially for second earners; the net losses for the tax authorities would thus be lower in the medium term than the short-term gross losses. But at least in the short term, the federal government would have to compensate for the estimated loss of revenue with unpopular savings or with at least as unpopular increases in other taxes in order to continue to comply with the rules of the debt brake.
The Central initiative is politically vulnerable, above all, because of its distributional effect. According to the estimates of the Federal Council on its earlier reform proposal, the tax cut of almost CHF 1.5 billion per year would have benefited the high earners in particular: almost 90 percent of the tax cut would apply to taxable annual incomes of CHF 100,000 or more (see chart). The tendency towards preferential treatment, especially in the case of high incomes, lies in the nature of direct tax cuts if the progression of tax rates is not changed at the same time. And changing tax progression is a politically tricky proposition – because along with winners there are losers, and the losers typically shout much louder than the winners.