Marriage penalties exist in Switzerland, Cyprus and Greece

“My husband and I should get a divorce,” said a colleague some time ago. If they were divorced, they would save 20,000 francs in taxes a year, she added angrily. The couple has a teenage child, both are well educated and earn accordingly. The so-called marriage penalty applies to them in full. But the colleague was still reluctant to divorce. Instead, she reduced her workload to 60 percent. This reduced the family’s tax burden at least a little.

Political long-running issue

There is a broad consensus in Switzerland that a marriage penalty is unfair. Individual taxation, which assesses both spouses separately, would abolish it. Taxation would be neutral based on marital status – whether someone is married or not would no longer play a role.

The debate is a long-running political issue. As early as 1984, the Federal Supreme Court ruled that married couples were disadvantaged compared to single people in certain cases. The abolition of the marriage penalty has therefore been discussed for years. On September 25, the National Council will decide on the Federal Council’s indirect counterproposal, which it has drawn up in response to the FDP women’s initiative on individual taxation submitted in 2022. The counterproposal provides, among other things, for an increase in the federal tax allowance from 6,700 francs to 12,000 francs per child, as well as an adjustment of the tax rate, in which the tax rates for low and middle incomes are reduced and those for very high incomes are slightly increased.

How do other countries do it? Many European countries have moved from community taxation to individual taxation in recent decades. The discussions followed the same lines as in Switzerland: the focus was on promoting equality between men and women and on better work incentives for second earners, whose paid work should not be penalized by achieving a higher tax progression.

Sweden started early

One pioneer was Sweden, where individual taxation was partially introduced in 1971. Since 2007, both income and assets have been taxed entirely individually. Sweden is considered a country in which gender equality was adopted relatively early on in society. Today, the country, with its high employment rate of women, is considered by many to be a model in terms of equality.

Married couples are also taxed separately in Great Britain, the Netherlands, Denmark and Austria. Catholic Italy, Hungary, the Czech Republic and Estonia have also introduced individual taxation. To support families, married couples are granted different types of deductions depending on the country.

Switzerland is a double special case

In addition to the large group of “progressive” countries, there is a smaller group of countries with joint taxation. These include Catholic Poland and Luxembourg. Germany also has a married couple tax system, although couples can choose to be taxed individually. France also taxes jointly, but what is special about this is that it is split according to the number of family members. This acts as an active family policy, as the tax burden decreases with the number of children.

Joint taxation tends to encourage a traditional division of roles, as unequal incomes are leveled out. In Germany, the excitement about the anti-emancipatory effect of tax splitting is limited. The reason lies in the wallet: married couples are generally treated more favorably in Germany.

Switzerland is a special case in Europe in two ways. Firstly, it is one of the smaller group of countries that tax married couples. Secondly, the marriage penalty cannot be avoided by allowing taxpayers to choose their preferred model, as is the case in Germany or Spain. Aside from Switzerland, a marriage penalty also exists in Greece and Cyprus.

To be fair, however, it must also be said that in Switzerland there is not only a marriage penalty, but also a marriage bonus. On the one hand, married couples have a lower tax rate than single people and cohabiting partners without children. And on the other hand, there is a tax deduction for second earners. According to an analysis by the Institute for Economic Policy (IWP) at the University of Lucerne this spring, only 29 percent of married couples are at a tax disadvantage compared to cohabiting couples when it comes to direct federal tax, while 46 percent even enjoy a marriage bonus. These are primarily traditionally organized families with unequal incomes.

People are faster than politics

In the face of slow-moving politics, the population is finding its own way. He and his partner simply wouldn’t get married, says a father of two who, like his partner, works part-time and has a high workload, making him one of the “modern” couples with an egalitarian lifestyle. By foregoing the marriage certificate, the couple is practicing individual taxation of their own choosing.

The couple is not alone in their decision against marriage. Regardless of individual taxation, people’s lives have already changed significantly. Marriage as an institution has lost importance. One in five children is born in a cohabitation. The tendency is for couples in particular to opt for cohabitation where both partners are employed and financially independent and want to remain so.

But there are also traditional couples – even if their numbers are decreasing. One father says that he and his wife made a conscious decision not to have their children looked after by someone else during their first years of life. In return, the family had to forego his wife’s income for several years. He doesn’t know why that would be worse. He believes it is not up to the state to give tax advantages to one family model or the other – and he is not alone in this view.

However, there is no neutrality in individual taxation when it comes to lifestyles: a couple in which both partners work 50 percent of the time will be better off than a couple in which the sole earner earns the same income. Such considerations are also a reason why Switzerland is not simply implementing the system change.

Women work more – despite the tax system

It is not clear how much individual taxation encourages second earners, i.e. women, to work more. In its message on the popular initiative and the indirect counter-proposal, the Federal Council estimated the employment effect of a system change at between 10,000 and 44,000 full-time jobs.

In its message on the popular initiative and the indirect counter-proposal, the Federal Council estimated the employment effect of a system change at between 10,000 and 44,000 full-time positions. This figure is an extrapolation based on the assumption that the reform is also implemented at the cantonal level. The Federal Council estimated the employment effect purely at the level of direct federal tax at between 2,600 and 11,000 full-time positions, depending on the scenario.

In its own model, the Lucerne-based IWP assumes that a change in the direct federal tax system would result in 4,451 new people entering the labor market and the number of full-time jobs increasing by 5,238. The IWP classifies the labor market impact as comparatively weak, as the institute writes in its report. In total, there are around 5.3 million employed people in Switzerland.

The limited effect may be due to the fact that the position of women in the labor market has changed significantly anyway. Instead of standing at the stove, women work more and for longer hours than they did twenty years ago. But this also means that the labor potential that one hopes to exploit with better incentives for second earners may be smaller than assumed.

In addition, the decision to work more or less will ultimately only depend partly on the tax progression percentage. More important are questions such as: How much work is compatible with my family responsibilities? How much money do we need? How much fulfillment do I find in work and how much time do I want to spend with the children?

This means that the demographic trend towards smaller families is likely to boost employment in the future. “The desire to have children has slipped down the priority list and is being postponed until the future, while their own career and financial independence have become more important for many women,” says Professor Katja Rost, Professor of Sociology at the University of Zurich. Children can undermine this concept. In the end, not having children can have a greater effect on the labor market, income and equality than the introduction of individual taxation.

In an original version of the article, no distinction was made between the labor market effects purely at the level of direct federal taxes and the estimates including the cantonal level; this has now been clarified.