Cold Progression

The term cold progression is used to refer to increases in tax burdens which are based on increases in income but do not account for inflation.

For example, incomes may be adjusted to compensate for rising living costs caused by inflation. When progressive taxation brackets are not adjusted to account for inflation, increases in taxpayers’ incomes can result in their being bumped into higher tax brackets and being taxed at higher tax rates without earning more in terms of actual purchasing power. In this case, actual income after adjustment for inflation may be lower than actual income before the income adjustment for inflation.

Example of cold progression:

A person has a taxable income of 50,000 Swiss francs which is taxed at a 10% tax rate, meaning they must pay 5000 francs income tax on their taxable income. That leaves the person with 45,000 francs or 90% of their pre-tax taxable income.

Inflation causes the costs of goods and services to increase by 6%, and the person’s salary is raised by 6% to compensate for the increased cost of living. Although their real wage has not increased, the person now has a higher taxable income of 53,000 francs and is bumped up into a higher tax bracket. They are now taxed at a 15% tax rate instead of the 10% tax rate applicable to their former taxable income. As a result, they pay 7950 francs in taxes, leaving them with just 85% of their pre-tax taxable income or 45,050 francs which after inflation has the purchasing power of just 42,500 francs compare to their former income.

More on this topic:
Progressive taxation explained
Marginal tax rates explained
Swiss federal income tax calculator

Request now for free

Leading credit cards

Free credit card

Swisscard Cashback Cards Amex

  • No annual fees

  • Two cards Amex & Visa/Mastercard

  • With cash back

Free credit card

Migros Cumulus Visa

  • No annual fees

  • With Cumulus points

  • Without foreign currency fees

Trading platforms

Brokers with low fees

Swiss Broker

FlowBank

  • Swiss online bank

  • No additional exchange charges

  • No transaction fees for Swiss equities

Swiss Broker

Saxo Bank Switzerland

  • Swiss online bank

  • Favorable prices stock trading

  • High account interest rates

Swiss Broker

Cornèrtrader

  • Swiss online bank

  • No custody fees for stocks

  • Free market research and trading signals

Request now for free

Cheap bank accounts with card

Free bank account

Yuh

  • No account fees

  • Banking partner: Swissquote & Postfinance

  • CHF 20 trading credit with code «YUHMONEYLAND»

Swiss digital bank

Alpian

  • Multi-currency account with Visa card (CHF, EUR, USD, GBP)

  • Favorable foreign exchange rates

  • CHF 100 welcome bonus

Online private account

UBS key4

  • 50 KeyClub points as a welcome gift

  • Online private account with debit card

Expert Benjamin Manz
Benjamin Manz is CEO of moneyland.ch and an independent expert on banking and finance.