Does the “99 per cent initiative” fit into Switzerland’s federal tax system?

by Dr rer. publ. Werner Wüthrich

On 26 September, we will vote on a popular initiative that wants to change our tax law. It aims at taxing capital “more fairly” throughout Switzerland and thus relieving 99 per cent of the population. In 1874, almost 150 years ago, voters approved the Federal Constitution, the broad guidelines of which are still valid today. The right of referendum was new. A few years later, the right of initiative was added, enabling citizens to propose amendments to the constitution and put them to a vote. Since then, more than 600 plebiscites have taken place at the federal level. Something has been standing out in the long time to the present: There are areas of law that are particularly frequent subjects of plebiscites. These include agriculture and taxes. We have seen quite a few “agricultural votes” in recent years, and now there will be another “tax vote” on 26 September. (Since World War II, there have been 55 votes on public finance issues at the federal level alone, many of which ended in a nay vote.)1

There is a peculiarity to tax referenda that must be kept in mind: The pronounced fiscal federalism, which exists in such a way only in Switzerland. Each of the 26 cantons has its distinct tax sovereignty, as the lawyers call it. This means that each canton has the independent right to levy taxes. This inevitably leads to substantial differences and to tax competition (which is mitigated by financial equalisation). The communes also levy their own taxes within the framework of communal autonomy. For them, there is a financial equalisation within the canton.
  Voters vote on all major expenditures as well as on taxes in their canton and commune.
  The Confederation, on the other hand, does not have the right to levy taxes independently. In the 19th century, the Confederation financed itself through customs duties alone. When these were no longer sufficient, in a referendum the citizens provisionally assigned the right to levy taxes to the Confederation. The first time this happened was in the middle of World War I. This right had to be renewed every few years – each time by means of a plebiscite. The federal financial regulations (with today’s direct federal tax and value added tax) has been anchored in the constitution since 1958. But it is limited in time as well. This means that the two federal taxes must be confirmed by the people as a whole every few years. Initially, this was done every five years, later at longer intervals. The last two votes took place in 2004 and 2018. The next one will follow in 2035. (In addition, tax rate and tax tariffs are directly included in the federal constitution. For even a small tax increase of, say, 0.1 per cent, a constitutional amendment and the approval of the electorate is needed). – Once again, the cantons have the actual tax sovereignty in Switzerland. This is the background to the following remarks.

Now let us look at the upcoming tax vote

The Young Socialists have submitted this popular initiative (“Relieve wages, tax capital fairly”). The demand is that, in Switzerland, income from capital (especially interest and dividends) above a certain limit (to be determined by parliament) be taxed at double the rate. The additional revenue of about 10 billion francs is to be used for social purposes.
  The initiators calculate that only one per cent of taxpayers would be affected, while 99 per cent would be relieved. – The arguments for or against are not to be listed here. That is done in detail in the media. Below, the focus is on the question of whether this initiative fits into Switzerland’s tax system.

Would the direct federal tax be affected?

This would probably not be the case, because the highly progressive federal tax is capped. Article 123 a) of the Federal Constitution states: “The Confederation may levy a direct tax a) of not more than 11.5 per cent on the income of natural persons.” […]

Would the cantons be affected?

Yes – they would have to implement the demands of the initiative in their tax laws. It is quite possible that their population would not accept the intervention from above in their tax sovereignty. – A look back at similar popular initiatives in the last hundred years would suggest this conclusion.

One hundred years ago

In 1921, parliament proposed to extend the war tax until the debts from World War I would have been paid off. The Social Democrats (SP) did not agree. They launched a popular initiative “For the levying of a one-off wealth tax” on the rich as an alternative to the official policy. The proceeds of the tax – according to the SP – should be used not only to pay off the war debts but also for social purposes. The working class had been hit hardest by the misery, the privations and problems of the war. Quite a few Swiss had also profited from the war (the so-called “war profiteers”), and it would have been more than justified that especially the rich and the profiteers should have to pay the war debts. The rate of the proposed levy was high. Specifically, rich people with assets worth about 10 million francs today would have had to pay a one-time levy of 20 per cent of that amount, and even richer people would have had to pay considerably more. At that time, there were not so many “rich” people. A very small minority of just six per mille of taxpayers would have been affected by this tax, and a majority of 99.4 per cent was to be substantially relieved.
  Feelings ran high in the referendum campaign. The Sunday of 3 December 1922 was to go down in the history of direct democracy. 89 per cent – almost all eligible voters – went to the polls! Such a high turnout has never been achieved again to date. Almost 90 per cent of those who voted rejected the popular initiative. Large sections of the workers voted no. At that time, the SP had a voter share of about 30 per cent. The social problems after the war were indeed great; however, this vote showed that most workers were not prepared to engage in radical “class struggle” through plebiscites. The reflex to the massive encroachment on the tax sovereignty of the cantons must have played a role. Yet there were plebiscites on how to repay war debts also after World War II.

… in more recent times

In 1973, the Landesring der Unabhängigen (National Ring of Independents LdU, founded by Gottlieb Duttweiler, who was equally the founder of Migros) launched the popular initiative “for fairer taxation and the abolition of tax privileges” in the form of a general proposal. The initiators wanted to introduce a uniform tax system throughout Switzerland. A federal tax on the income and assets of natural persons and on the earnings and capital of companies was to replace the cantonal taxes. The cantons would participate in the federal tax in proportion to their financial needs. Inheritance tax would also be regulated uniformly. The many opponents of the initiative accused this of wanting to turn the federal structure of the Swiss state upside down and introduce a centralist system. – A clear majority of those who voted also saw it that way and rejected the initiative in 1976, and almost all the cantons also said nay.
  In 1977, the Social Democrats submitted the popular initiative “For a wealth tax”. The pivotal sentence was: “The Confederation shall ensure that incomes above 100,000 francs are subject to a uniform minimum tax throughout Switzerland.” The people and all the cantons rejected this.
  2010: The Social Democrats’ “Fiscal Justice Initiative” demanded uniform minimum taxation of high incomes and assets throughout Switzerland. 58.5 per cent of voters and most cantons rejected it.
  In 2014, the people rejected the SP’s initiative “Stop tax privileges for millionaires (abolish lump-sum taxation throughout Switzerland)” with 59 per cent of nays. (Shortly before, the people had abolished this type of taxation in the canton of Zurich).
  In 2015, the Social Democrats submitted the initiative for a new federal tax that wanted to tax “inheritances worth millions” uniformly and also retroactively. The sovereign rejected this with over 70 per cent of nays. In contrast, most cantons have abolished inheritance tax for direct descendants and spouses in recent years because the inherited assets were already taxed once as income and assets within the family.
  All the popular initiatives depicted above have one thing in common. They intended to intervene to a greater or lesser extent in the tax sovereignty and thus the sovereignty of the cantons, and enforce materially uniform regulations. In doing so, they triggered reflexive resistance, even when there were factual reasons for an aye vote. It was often a question of freedom before “justice”. – To date, none of these initiatives has found a majority among the people. The Young Socialists’ initiative of 26 September will probably fare no better.
  (For more details, see the author’s book published by Zeit-Fragen in 2020: Wirtschaft und direkte Demokratie in der Schweiz – Economy and Direct Democracy in Switzerland). •, Chronologie Volksabstimmungen (Chronology of popular votes); Linder, Wolf et al. Handbuch der eidgenössischen Volksabstimmungen 1848–2007 (Compendium of Confederate Referenda 1848–2007), Bern 2010

Fairer and more sensible: popular initiative “Micro-tax on cashless payment transactions”

ww. Signatures are currently being collected for a popular initiative that aims at establishing a micro-tax. All online payments and transfers are to be taxed anonymously at a low rate of maximum 5 per mille (0.05 per mille in the first year). As explained by the initiator, Professor Marc Chesney, a financial scientist at the University of Zurich, this should initially generate at least 10 billion francs or more. Gradually, this is to replace the federal taxes (value-added tax, direct federal tax and stamp duty), which are to be reduced accordingly, and also the cantons are to be taken into account. In this way, the booming financial sector is to be more involved in the financing of the commonwealth. The idea is impressively simple and is also supported by banking circles. – In any case, this tax does not affect the tax sovereignty of the cantons. (cf. Martin Neff, Chief Economist Raiffeisen. “The power is in the microcosm. Why the micro-tax initiative very much deserves support.” In: Current Concerns No. 14 of 22 June 2021; cf. also Raiffeisen Economic Research;

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