Married couples should fill out separate tax returns in the future. The model proposed by the Federal Council would result in revenue losses of around CHF 1 billion per year for the Treasury. The political hurdles for the system change are high.
Married couples are to be taxed separately in the future.
The “marriage penalty” in federal taxes is like the imputed rental value: The criticism has been great for a long time, in Sunday school there are majorities for a system change, but on weekdays it is extremely difficult to find a majority for a concrete reform model. The core problem in both dossiers: Every reform model buys the hoped-for advantages with new disadvantages – there is no such thing as the perfect model.
In other words, there are inevitable trade-offs. In order to eliminate the tax marriage penalty, in 2020 Parliament had announced its intention to introduce individual taxation in principle: It wrote to the Federal Council as part of the 2019-2023 legislature plan that it would adopt a legislative proposal for individual taxation in the specifications.
In autumn 2021, the Federal Council delivered one layout about possible variants. In that report he recalled the conflicting goals. For example: Pure individual taxation would correspond to the postulate of marital status neutrality, but it would contradict the postulate that households with the same total income are taxed equally. Because of tax progression, a couple with an income distribution of, for example, 100/0 percent or 90/10 percent would pay significantly more tax than a couple with 50/50 percent. According to the Federal Court, corrections would therefore be needed.
New deductions as patches
On Wednesday, after consulting the responsible parliamentary commissions, the Federal Council benchmarks of individual taxation with separate tax returns from spouses. One variant is the introduction of a single-earner deduction for married couples in order to avoid major disadvantages for this group. In this variant, the introduction of a household deduction for single people and single parents is also up for discussion – so that these groups do not suffer too great a disadvantage either. However, the Federal Council also wants to submit a model without a single-income deduction for consultation; this would bring higher employment incentives. Here, too, conflicting goals can hardly be avoided.
The Federal Council does not want to pursue the Ecoplan model. 2019 had one study of the Bern-based research office Ecoplan, on behalf of the Müller-Möhl-Foundation, recommended an individual taxation model with two tax rates: in households with children, the recipient of the first income should be taxed at the lower rate. This model would provide relatively strong work incentives for second earners. In its 2021 report, however, the Federal Council described this model as “problematic” because in many couples with children it could mean that “the person with the higher income has a lower tax burden than the person with the lower income”.
Instead, the government is planning an increase in “child-related deductions”; this concerns in particular the child deduction in connection with insurance premiums as well as the general child deduction. It is still unclear how these deductions will be divided between the parents; a 50/50 split or in proportion to income is conceivable. The latter would seem more obvious from the point of view of the control logic, but would be administratively more complex. The assets and income from the assets are to be divided between the partners in accordance with the principles of civil law – i.e. in the case of bank accounts according to the account names and in the case of real estate according to the entry in the land register.
The Federal Council proposes that the reform will lead to a net loss of revenue of CHF 1 billion per year. According to the cantons’ share of the direct federal tax of 21.2 percent, the cantons would account for a good CHF 200 million of this loss. Married couples with relatively evenly distributed incomes and high total incomes would benefit most from an unchanged rate structure. But the rate of change is not set in stone. Model calculations with different progression curves and thus different distribution effects are still to come.
High hurdles
Given the bleak federal financial outlook due to heightened covetousness from left to right, family tax reform is politically even more difficult than it already would be.
The reformers are between the hammer and the anvil: A reform without losses for the tax authorities will produce many losers among taxpayers and thus a lot of resistance, and a reform with high losses will produce a lot of resistance due to concerns about the federal coffers. The left, in particular, is concerned about federal revenues. The SP was recently successful at the ballot box twice with referendums against tax cuts.
Politically, the hurdles for the reformers still appear high to almost insurmountable. The SVP and the middle parliamentary group are fundamentally against individual taxation, the cantons are critical in particular because they fear additional expenses for administration, and the Left Party does not want any losses for the tax authorities.
The center soon wants to start its popular initiative for the tax treatment of marriage as an economic community and thus against individual taxation. At the same time, a counter-project is running. A committee launched primarily by FDP women has been collecting signatures on a popular initiative for individual taxation since March 2021 and, according to information from Wednesday, has collected around 80,000 signatures so far. The committee has until September; At least 100,000 valid signatures are required for the initiative to come about. The text of the initiative only contains the principle of individual taxation and, as is usual with popular initiatives, elegantly avoids the practical problems of any implementation.