Richest one percent pays smallest share of taxes in Switzerland

The richest one percent of people in Switzerland pays the smallest share of taxes, according to a new study by ETH Zurich reported by SRF. The study also finds that wealth inequality is lower than previously estimated, while income inequality is higher.

The research team, led by economists Enea Baselgia and Isabel Martinez, used Switzerland’s total income and wealth as recorded by the Swiss National Bank rather than tax data. The aim was to estimate the income of the wealthiest one percent more accurately.

Traditional inequality studies based on tax data underestimate income and wealth because some economic income and assets are not taxed. These include undistributed company profits, pension fund assets and the market value of property.

The researchers therefore used the national economic accounts, which include all income generated in Switzerland and all recorded assets. They then distributed these figures across the population.

The study also uses a broader measure of taxation. In addition to income and wealth taxes, it includes compulsory payments such as value added tax based on consumption, health insurance premiums minus premium reductions, and corporate profit taxes where retained profits are allocated to individuals.

The study has not yet undergone peer review. It is expected to be submitted shortly to an academic journal for assessment by independent researchers. For its report, SRF also asked two researchers not involved in the study to examine it.

Wealth inequality lower than previously estimated

Earlier studies pointed to very high wealth inequality in Switzerland. The new study counts pension fund assets as wealth and values property at market prices, which are significantly higher than tax values. Both changes increase the wealth attributed to the middle class and reduce measured wealth inequality.

Income inequality higher than previously estimated

Income inequality in Switzerland was generally considered moderate. Baselgia said earlier studies had not included all economic income, particularly profits retained by companies instead of being distributed to their owners.

Because these profits are not paid out, they do not appear in tax data, making some people appear poorer than they actually are. The study allocates the retained profits to the owners. As a result, the income of the richest one percent rises by about half, and that group accounts for around 17 percent of all income.

Tax burden falls at the top

These figures are important for analysing the tax system. Company owners pay, or their companies pay, corporate profit tax on retained profits rather than income tax. Corporate profit tax rates are lower than income tax rates.

As a result, the tax burden decreases at the top of the income scale, Baselgia said. The researchers found the same pattern in all other countries for which comparable studies exist.

The study found that people with the highest incomes pay the smallest share of taxes and compulsory charges, despite Switzerland’s cantonal wealth taxes. Switzerland’s wealth tax is paid mainly by the country’s richest people.

Ben Jann, a professor of social structure analysis at the University of Bern who was not involved in the study, praised it as comprehensive. He noted, however, that only income and wealth taxes are defined progressively in the study.