Switzerland has voted to abolish its “marriage penalty.” Married couples will now file taxes separately instead of jointly, 40 years after Switzerland’s Federal Supreme Court ruled the penalty unconstitutional. The reform was passed on International Women’s Day, which adds an interesting layer given who the penalty tended to affect most.
Progressive tax rates typically depend on individual incomes. In practice, higher earnings are taxed at higher marginal rates. When a country assesses taxes at the household level, and married couples file jointly, the household often moves into a higher tax bracket than either individual would face separately. The result is what policymakers describe as a marriage penalty—a higher combined effective tax rate for married couples than for two individuals.
But it’s more of a second-earner penalty, as it’s the second income that is generally taxed at the household’s highest marginal rate. This structure can discourage labor supply among secondary earners. Historically, second earners have disproportionately been women, so the tax burden of joint filing has often been uneven.
Under Switzerland’s new policy, each spouse files a separate return and will be taxed on their own income rather than a combined household total.
The Swiss vote raises a fundamental question of whether income should be taxed at the individual or household level. Joint taxation can reflect the economic reality of pooling household resources but can also create distortions in labor incentives within households. Individual taxation more closely reflects how income is earned but may ignore access-to-capital disparities between married and single individuals. Trade-offs abound.
Even basic structural choices in tax design can carry significant economic and social implications. The Swiss reform shows how tax policy choices may need to be revisited as economic realities and social priorities evolve.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined tax fraud sentencing, changing foreign government income rules, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Five Questions With Olshan Tax Partner Kuang-Chu ‘K.C.’ Chiang
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. We kick off the series with K.C. Chiang, a corporate tax partner at Olshan Frome Wolosky in New York.
Accounting Firms, Schools Must Craft Next Generation’s Future
Both accounting firms and academia must design learning environments and curricula that will ensure the next generation of accountants develops AI fluency on top of critical thinking skills.
Usage-Based Billing VAT Issues Mean Tax Teams Must Engage Early
Usage-based billing isn’t going away. AI has made it mainstream, and the same logic is spreading across digital services. Tax teams need visibility into how those models are implemented.
IRS Reform Bill Is Good Start That Falls Short of Modernization
New bipartisan legislation designed to improve IRS procedures and tax administration includes changes that would make tax filing easier and help protect low-income filers from fraud. Policymakers need to build on this modest step through a robust effort to address the depleted state of the IRS.
Changing Foreign Government Income Rules Risks Blurring a Line
Efforts to modernize the tax treatment of sovereign wealth funds must not sweep fundamentally different forms of investor participation into the same regulatory framework.
Tax Fraud Sentencing Has a Gap Defense Attorneys Are Missing
The restitution protection gap represents a critical blind spot in federal tax fraud practice. Two upcoming cases exemplify this gap.
Data Center Tax Breaks’ Public Impact Depends on Their Design
Governments in competition to attract data centers should view tax incentives as strategic instruments for fostering sustainable digital infrastructure, rather than as open-ended financial commitments intended solely to attract prominent industry players.
Washington State Rulings Highlight Thorny Business Tax Questions
Two recent precedential decisions from Washington state appeals courts underscore that businesses should carefully analyze their transactions’ economic substance when determining tax obligations.
UK Gets Creative With Tax Relief for Research and Development
People working in UK creative arts such as theater, film, music and dance can now benefit from updated guidance from the UK tax authority on claiming R&D tax relief.
Technically Speaking
When Congress reforms energy tax credits, it should adopt multi-year phaseout schedules written directly into statute, Andrew Leahey says in his latest Technically Speaking column. “In capital-intensive industries, small changes in tax treatment can translate into meaningful shifts,” he writes.
“Regulatory uncertainty in the energy sector should be reduced wherever possible,” Andrew writes, arguing that energy-related agencies should be required to finalize or withdraw proposed rules within a fixed window unless Congress grants an extension. Read More
News Roundup
Partnerships Still IRS Target Despite Trump Rollbacks, Kies Says
The IRS will still pursue abusive partnership transactions, despite rolling back rules meant to target those moves, Kenneth Kies, assistant Treasury secretary for tax policy, told business executives Tuesday.
Washington Millionaires Tax Passes House After 24-Hour Debate
Washington is one step closer to instituting its first personal income tax after the state house approved a levy on incomes over $1 million.
Targeted Ads, Porn Sites Taxed in Bills Headed to Utah Governor
Utah lawmakers are sending three bills to the governor that would apply new taxes on targeted advertising and pornographic websites, plus close a loophole that could allow some streaming services to avoid paying sales tax.
Rock-Themed Campus Tour Courts Gen Z to Fill Accountant Shortage
Facing a shortage of accountants, state accounting boards are vigorously trying to attract younger workers to the profession through outreach like a rock-music themed, college tour to publicize easing of decades old licensing requirements.
Tax Management Memorandum
DOL Proposes to Replace the 2024 Independent Contractor Rule
The DOL proposed a new rule to simplify independent contractor classification, reverting to a framework similar to the 2021 rule.
Career Moves
Charles Russell Speechlys Adds Ney as Tax Partner in Geneva
Frédéric Ney joined Charles Russell Speechlys as a tax partner in Geneva, the firm announced Monday.
Barnes & Thornburg Adds Two Public Finance Partners in LA, MN
Megan McCarthy and Benjamin Vernon joined Barnes & Thornburg as partners, the firm announced Monday. McCarthy joined in Minneapolis, while Vernon joined in Los Angeles.
Akin Recruits Chris Odell as Business Tax Partner in Chicago
Christopher Odell joined Akin as a tax partner in Chicago, the firm announced Monday.
Alston & Bird Adds Robert Friedman as Tax Partner in New York
Robert Friedman joined Alston & Bird as a partner in its federal and international tax group in New York, the firm announced Tuesday.
Sidley Taps Greg Featherman as Tax Partner in New York Office
Greg Featherman joined Sidley as a partner in its tax practice in New York, the firm announced Wednesday.
To contact the editors responsible for this story:
Learn more about Bloomberg Tax or Log In to keep reading:
See Breaking News in Context
From research to software to news, find what you need to stay ahead.
Already a subscriber?
Log in to keep reading or access research tools and resources.