In today’s post I continue translating the information package the Swiss government sends to voters to help them decide how to vote on the issue at hand. In this case the issue is to decide if taxes will be raised on capital and decreased for salaries.
I hope these materials convince you that you are as capable of deciding major issues as the Swiss are, and that it will motivate you to demand direct democracy wherever you live; from your town or village to the whole nation.
I continue the translation:
The term “capital income” is not currently defined in tax law. This term can be understood, for example, as interest, rental income, dividends and gains from the sale of securities or buildings. Part of the income of the self-employed can also be considered as capital income.
Currently, all types of income are in principle taxed in Switzerland in their entirety: income from work (salaries), pensions and income from capital. However, there are some exceptions to the taxation of capital income:
– Dividends are not taxed in their entirety as income in case of a participation of at least 10% in a company. Dividends are profits that companies distribute to their owners (e.g. shareholders). This partial taxation is due to the fact that profits are already subject to income tax. Without a shareholding of at least 10%, dividends are taxed in full.
– Private real estate gains are only taxed at the cantonal level. Such gains are realized, for example, on the sale of land or a house.
– Other private capital gains are exempt from tax. Such gains are realized, for example, on the sale of shares.
Capital is not only taxed as capital income, but also in other forms: – The cantons and municipalities levy a tax on the wealth of individuals and on the capital of companies.
– The Confederation, cantons and municipalities tax profits.
– Companies pay a stamp duty on trading in securities.
– Most cantons levy a transfer tax on the transfer of property.
In terms of the overall taxation of capital, Switzerland is above average compared to the EU member states.
For the authors of the initiative, the current taxation of capital and redistribution are insufficient. They call for a higher taxation of capital income when it is high. Capital income above a certain amount would be taxed one and a half times, i.e. 50% more heavily than other types of income. Above this amount, each franc of capital income will be counted as 1.50 francs. If the initiative is accepted, the Parliament will define the amount in question. The higher taxation will apply at both federal and cantonal level.
What the initiative proposes is that if you earn in salary 150 000 dollars, you will be taxed on 150 000 dollars, but you derive income from investments you will be taxed as if you earned 175 000 dollars.
If the initiative is accepted, the first 100,000 francs of capital income would be taxed at 100%, while the remaining 50,000 francs would be taxed at one and a half times, and thus at 150%. The taxation of income in salaries would not be affected by the initiative and would remain unchanged.
In addition to the taxable income, the tax rate is also decisive for the calculation of taxes. The initiative does not impose any conditions regarding tax rates. The Swiss Confederation (national government) and the cantons remain responsible for setting them. If the tax rates remain unchanged, the persons concerned will pay more tax on the part of the capital income exceeding a certain amount.
The additional revenues resulting from the higher taxation of capital income will, as the initiative states, be used to reduce the taxation of low and middle income earners or for social welfare benefits.
It is not known how the initiative will be implemented. If it is accepted, it is the Parliament that will decide the concrete terms of implementation. Among other things, it will have to decide which incomes are considered as capital income, above which amount taxation will be higher, and in which form the additional revenues will be distributed.
Increased taxation of capital income could lead to behavioural changes. For example, people with high capital incomes may move to other locations. Savings patterns could also change, as income generated from capital savings would be taxed more heavily.
It is not possible to assess the extent of such behavioural changes, particularly in the absence of a clear understanding of how the initiative would be implemented. For this reason, it is also not possible to quantify the additional revenue that would result from higher taxation of capital income. Since capital income is very sensitive to taxation, it is unlikely that the additional revenue expected by the authors of the initiative will be realized. Thus, the intended redistributive objective is not likely to be achieved.
That is what the Swiss government is telling voters. The same government package also includes the position, in detail, of the committee who gathered the signatures to have the referendum.
In the next post on this issue, I will translate in detail the position of that committee.
Victor Lopez
