Will proposed tax deductions for families with kids benefit mainly the rich?

There are two parts to the proposed tax break, designed initially to help alleviate the financial burden on parents, especially in relation to care provided by crèches and independent child minders, like the one pictured here. © Keystone / Christian Beutler

What began as a measure to lighten the fiscal burden on parents has turned into a battle over whether those who truly need the help will actually get it.

This content was published on August 5, 2020 - 11:20

A coalition of mainly left-leaning parties have forced a nationwide referendum, set for September 27, on a proposed amendment to the tax law that would see current deductions for families with children increase from CHF6,500 ($6,928) to CHF10,000.

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Their primary objection: the proposal would put money into the pockets of only the richest in Switzerland.

“What’s being sold as support for families is nothing more than a gift for the highest earners,” the Social Democrats argue on their campaign website. “If we take all households – including those that don’t have children – into account, only 6% of Swiss households will benefit.”

Only those who are liable to pay the federal direct income tax would earn this tax rebate. This effectively shuts out more than 45% of Swiss families, the left-leaning party claims, while mainly families earning at least CHF150,000 are set to gain.

What are the proposed income tax deductions?

There are two parts to the proposed amendment. The first is to increase the deduction for childcare expenses from CHF10,100 to CHF25,000, to better account for the high costs of daycares or crèches. The second part was proposed by the centrist Christian Democratic Party and approved by parliament after lengthy debates. It would see the general deduction for having children increase from CHF6,500 to CHF10,000, and would apply to those who pay the federal direct income tax. It is this part of the amendment that the left is now challenging in the upcoming referendum.

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A closer look at the households that would be eligible for the proposed deduction suggests that, while there are elements of truth to the campaigners’ argument, it is somewhat misleading to say that only the richest, or just 6% of Swiss households, would profit from the proposal.

Rebates for the rich – and the less rich

Switzerland levies taxes at the federal, cantonal and local levels. However, only those with a minimum taxable income – CHF17,800 for a single person and CHF53,400 in the case of a family with one child – pay the federal tax.

The Federal Tax Administration confirmed to swissinfo.ch that around 60% of all families with children in Switzerland currently pay the federal direct income tax. All of these families would be eligible for some form of rebate through the proposed deduction, the agency added.

The chart below shows the rebate families at various net taxable income levels (after social welfare contributions and other deductions) would receive, calculated irrespective of whether they are single or dual-parent households or earning one or two incomes. According to the tax office, looking at taxable income is the simplest and most comparable way of understanding the potential effect of the proposed deduction.

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Generally speaking, the higher the income, the higher the rebate would be. For instance, to benefit from the maximum CHF910 rebate, two-children households would need to earn a taxable income starting around CHF160,000. Those with very high earnings, however, would actually get slightly less: a family with two kids earning CHF1 million in taxable income would be entitled to CHF805.

But families with one child and a taxable income of as little as CHF53,400 would also benefit from the proposed deduction; for families with two children, the minimum is CHF63,400.

In other words, although richer families would earn a higher rebate, families earning less would also be entitled to some financial relief.

A numbers game

The campaigners have claimed that just 6% of all Swiss households would benefit from the proposed deduction. However, this appears to be a simplified argument based on an otherwise accurate claim. In an in-depth paper on their website, the campaigners write that over 70% of the CHF350 million needed to cover the increased deduction would go to households with a taxable income of over CHF100,000 – which together represent 5.8% of all households in Switzerland.

The tax office confirmed that over 70% would indeed go to those earning more than CHF100,000. But, it added, if the argument concerns who among all Swiss households would benefit from the proposed deduction, then a more accurate figure would be 12.6%: that’s the percentage of all taxpayers in Switzerland (those with children plus those without) set to earn a rebate.

“But the most relevant figure is still that 60% of all taxpayers with children would benefit from the increase in the deduction,” Joel Weibel of the Federal Tax Administration told swissinfo.ch.

Verdict: Misleading

There is some element of truth to the claim that the proposed tax deduction for having children is merely “a gift for the highest earners”: richer families will indeed pocket a larger portion of the tax break. But it is also misleading, as it does not paint a complete picture of who would receive a rebate. Like richer households, families with more modest incomes would also benefit from the deduction of CHF10,000, although their rebates would be smaller.

The claim that only 6% of all Swiss households would benefit is also misleading. What the campaigners actually mean to say is that the bulk of the money would go to those earning a taxable income of CHF100,000 or more – or 6% of all households, according to their calculation.

But the tax authorities argue that this percentage is irrelevant, since it also takes into account people without children, who are not eligible for any child-related deduction. Looking at just families with children, 60% would be entitled to some form of tax rebate.

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