Saturday, April 25, 2015

Inheritance Tax

The Swiss will vote on June 14 whether to introduce a national inheritance tax of 20% of estates above CHF 2 million.

The text foresees unspecified exemptions for entrepreneurs (which by some is interpreted as an exemption of CHF 50 million and/or a lower tax rate of 5%) and retroactive implementation.

Currently it is unlikely that the new law (actually change of constitution) will be approved by the population as polls indicate a majority against the proposal.

In general I favour much lower tax loads as currently imposed almost anywhere, nevertheless in principle inheritance taxes are probably relatively fairer than other taxes. However, if I could vote in Switzerland I would be strongly against it, because of the following reasons:

- Retroactive implementation
- No offset with other taxes (say reduction of income and wealth taxes by the same amount)
- Unfairness (different treatment of entrepreneurs and non-entrepreneurs)
- Rate induces evasion and optimization (5% is probably the rate where these effects starts to play)

Possibly also the high exemption rate is negative because it disenfranchises the richer members of society as they see only themselves contributing (and receiving very little in return).

If I were to design an inheritance tax for Switzerland I would support it with the following parameters

- 5% rate
- no or very low exemption (say 5x minimum state pension of CHF 14´100)
- no exceptions (for entrepreneurs or otherwise)
- everybody is taxed (also surviving spouses and charity)
- abolishment of wealth tax

Wednesday, March 25, 2015

Political Preferences

In a NY Times blog post ("Rand Paul and the Empty Box"), Paul Krugman recycles a version of the Nolan diagram and claims that the upper right right box in the diagram will hardly attract any voters.

This is diagram shown in Mr. Krugman´s post.

Essentially this is a version of the Nolan diagram, which David Nolan suggested in 1970, here is a version, which turns the original graph by 45° (for ease of reference and comparison with the above), from here.

Here is another version, visualized with examples, also turned by 45° by myself from here, which seems to confirm that even among politicians the upper right area is thinly populated..

Now I don´t have data for US voter preferences, but found the following for Swiss party preferences. Interestingly here four out of the seven larger parties are in the upper right quadrant.

Large dot: country average, single dot: individual canton

The parties in the various quadrants (major parties in bold including last voting shares:

  • Upper left box / "Liberals" in Mr. Krugman´s diagram: Social Democrats (SP, 20%), Greens (GrĂ¼ne, 7%), Communists (Partei der Arbeit), Evangelical People´s Party (EVP); note: EVP is probably rightly classified as centrist party
  • Upper right box / "Liberterian" in Mr. Krugman´s diagram: Green Liberals (GLP, 7%), Christian Democrats (CVP, 11%), Conservative Democrats (BDP, 5%) and Liberals (FDP, 16%), note: both Green Liberals and Liberals are classical liberals
  • Lower right box / "Conservatives" in Mr. Krugman´s diagram: Swiss Peoples Party (SVP, 25%), Democratic Union (EDU), Ticino Leage (Lega)
  • Lower left box / "Hardhats" in Mr. Krugma´s diagram: Swiss Democats (Schweizer Demokraten), note: far right party not represented in national parlament
Given voter preferences, in Switzerland 27% of voters would fall in the upper left box, 39% in the upper right box and 25% in the lower right box (numbers don´t add to 100% as minor parties have been ignored) making it the strongest box.

Obviously Swiss voters preferences say nothing about US voters and Switzerland has historically had a long and successful tradition of classical liberalism. Nevertheless I would venture the guess that also in the US the upper right box is more populated than Mr. Krugman suggests.