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ORIGINAL FRENCH ARTICLE: Les très hauts revenus ne payent que 20 % d’impôts

by Clotilde Mathieu

French Top Earners Pay Only 20% in Income Tax

Translated Sunday 18 April 2010, by Gene Zbikowski and reviewed by Gene Zbikowski

The tax shield applies after the subtraction of tax deductions, which the richest French people use copiously. The idea that they pay 50% of their income in tax is a myth.

“No French person should have to pay more than 50% of his income in taxes,” Nicolas Sarkozy reiterated continually during the 2007 presidential election campaign. Since then, he has changed the tax shield from no more than 60% of income to no more than 50% in the name of a so-called tax “justice” whose avowed aim is to prevent tax evasion by the richest.

That argument has been shattered in the past few days. According to the figures published by the Ministry of Finance, 821 people who would have had to pay the wealth tax left the country in 2008, 102 more than in 2007. And this, despite the tax shield.

Moreover, a study by the French statistics bureau (INSEE) indicates that “for people who are very wealthy and for the wealthiest people, the level of tax is only around 25%," that is, far less than 50% of their real income. A statistic that really makes a splash in the midst of the tax shield debacle, which has come to symbolize a policy tailored to the rich.

This situation was made possible by a legislative clause which did not attract much attention when the tax shield law was voted. Thus, contrary to popular wisdom, the no-more-than 50% shield is not calculated on the basis of real income, but on the basis of the tax income of reference, that is to say, the post tax deduction income.

Take the case of a taxpayer who earns ten million euros a year and who can, thanks to tax deductions, subtract five million euros. The tax shield of no-more-than 50% will be calculated on the basis of five million euros in income instead of ten million. The taxpayer will pay tax on only half of his real income.

The main beneficiaries of the shield, whose fortune is greater than 15.5 million euros, are those who gaily use the many tax deductions available. By combining tax deductions and the shield, they can manage to avoid paying any tax at all, according to figures obtained by Didier Migaud (Socialist Party), the chairman of the Finance Committee of the National Assembly

In addition, the tax shield also covers income generated by a person’s fortune (stock market shares, income from real estate), which is taxed at a lower rate than salaried income. According to the Cour des comptes – the French version of the General Accounting Office in the U.S. – “whereas income from [salaried] activity only increased by 11% between 2004 and 2007, income generated by a person’s fortune and exceptional income saw a much more rapid rise, of 46% and 55% respectively.” Capital gains, for example, are taxed at a straight 18% rate, which mechanically lowers the average tax rate.

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