ORIGINAL FRENCH ARTICLE: Les riches, toujours plus riches, payent de moins en moins d’impôt
by Sébastien Crépel
Translated Thursday 24 September 2015, by
Three thousand of the well-to-do each got more than 240,000 euros in tax rebates in 2014, like they would have at the time of Sarkozy’s shield, between 2007 and 2011. An illustration of the unjust tax system, which does not compensate for the drop in income tax of low-income households.
The real winners amid the big tax rebates are not necessarily those one would have thought. Announced by the government to the sound of the big bass drum, the reduction in income tax (IR), for which estimates are starting to arrive in French homes, should affect 9 million households, with a sum total approaching 3.2 billion euros. However, other figures, revealed yesterday by Les Echos, throw a very different light on French fiscal policy. While the announced reduction in IR will essentially benefit lowest-income households, at the other end of the social scale the most well-off have seen themselves granted considerable reductions in their taxation as of last year. According to the business daily, which had access to the latest (2014) data from the Ministry of Finance, a small group of tax payers profited from a real bonanza through rebate of the wealth tax, l’impôt de solidarité sur la fortune (ISF). Exactly 3,290 contributors, each with a personal fortune exceeding 10 million euros, benefitted from an average rebate of 246,674 euros per household, on the amount normally payable to the public treasury. Total cost to the state – and therefore to all tax payers – around 800 million euros. This amounts to close to one billion (exactly 926 million euros, 27 percent greater than in 2013), if you add reductions given to others subject to the “lowest rung” of ISF, those whose fortune is between 1.3 and 10 million euros, who, on average, each saved between 10,000 and 30,000 euros in tax.
A state of affairs which harks back to the not-so-glorious days of the infamous “tax shield”... but worse! Because the sum of the “gifts” so granted last year is greater than the total amount generated by the scheme created by Dominique de Villepin when prime minister under Jacques Chirac in 2006, which was unhesitatingly followed and expanded by Nicolas Sarkozy, when at the Elysée between 2007 and 2011. At the time, this system of favouritism for the richest ended up with the latter being seen solely as a “president for the rich”, to the point where he was forced to renounce it for fear of compromising his chances in the presidential elections in 2012. The tax shield thus permitted the wealthiest to avoid between 600 and 700 million euros in tax, yearly. Once this symbol of injustice was dead and buried, how could these same people pocket an amount exceeding 200 to 300 million euros in 2014? The answer has a name a little less “bling-bling” than the tax shield: the ISF cap. A system which limits direct taxation liability to a maximum 75 percent of the contributor’s annual revenue, including ISF. In principle, the mechanism is identical to that of the tax shield in the Chirac-Sarkozy era: it also means that the tax liability of the rich can never pass a predetermined proportion of their revenue, first set at 60 percent, then lowered to 50 percent (39 percent if CSG and CRDS  are included in that tax calculation).
We must always be fair: though a cap was set for ISF, it was not the initiative of the current government, nor the preceding one led by Jean-Marc Ayrault, but that of the Constitutional Council, whose 9 August 2012 decision demanded that, “capping rules” be kept, such as those put in place by the Rocard government in 1989.
The misnamed Council of Sages, drew on the principle of “equality under public charges” to regularly censure tax rates which they felt to be excessive, generally those above 75 percent, a manifest abuse of power if one remains silent on this constitutional point. Still, the government could have tried to limit the advantage so accorded to the wealthiest by, for example, using the system in place before the tax shield was installed in 2006. At that time the tax limit was higher (equal to 85 percent of revenue) and the permitted tax reductions could not exceed a given limit (called the “cap of the cap”) fixed at half the ISF normally due. The government has done nothing: a damning passivity given the current intention to fight the partial censure of the Macron law.
Since the tax shield went, the limit has been raised
Since the disappearance of the tax shield, the limit has been raised, but the detrimental effects of part-avoidance of tax are identical or even worse, since the number benefitting is half of those under the tax shield (8,872 for all tiers of ISF in 2014) sharing an even bigger cake, each piece worth an average 104,000 euros. As for the drop in the number of beneficiaries, no big mystery, raising the cap to 75 percent mechanically reduces the number of contributors whose liability falls above the cap. On the other hand, one might expect that the cost of the plan would diminish proportionally: the reverse has happened. The key to this enigma: the “buoyancy of ISF receipts”, explains Les Echos. “Already greatly increased in 2014, this year ISF is forecast to produce unprecedented returns, estimated at 5.6 billion euros”, driven by the upturn in the stock and housing markets, but also by regularisation of “repentant” tax evaders”. “If contributors pay more ISF, they benefit in every sense from a greater return under the cap”, continued the newspaper blandly. That could be stated differently: the richer you are... the less tax you pay, in proportion to your fortune.
In this context, even though it constitutes a welcome gesture which will aid nine million households having trouble making both ends meet, reducing the lowest income tax brackets is the tax reform needed by the poor. In reality, it is the whole system which needs reviewing, as current taxation “is both unjust and inefficient and undermines acceptance of tax responsibilities”, we are reminded in an article in Le Monde, 2 December 2013 by Vincent Drezet, Pierre Khalfa and Christiane Marty, respectively heads of Solidaires Finances Publiques, the Copernic Foundation and ATTAC. Following a “real tax counter-revolution to the benefit of the wealthiest households and businesses”, the only just taxes – being progressive, so everyone contributes proportionally as their revenue rises – were attacked: thus for income tax, the number of tax brackets, which made it progressive, went from 14 in 1982 to seven in 2007, the marginal rate (that is to say the highest bracket) being lowered from 65 percent to 41 percent. Since the arrival of François Hollande, IR gained a higher bracket in 2013 (45 percent), and lost a lower bracket in the same year (the 5.5 percent bracket being partially aligned with the 0 percent bracket which was raised to 9.690 euros and above, compared to 6,011 previously): a good thing for the buying power of poor households, but bad for progressivity in taxation, since a contributor becoming liable passes directly from 0 to 14 percent tax on reaching an income of 9,691 euros (dropping from the previous 11,992 euros threshold).
The result, at the end of the reforms, IR returns continually decrease, while indirect taxes like VAT grow. IR will not represent more than 28.6 percent (69.1billion euros) of the country’s tax receipts in 2015, against 13.7 percent (33.1 billion) for corporate tax and... 58.3 percent (140.9 billion) for VAT. The last being particularly unjust because it is paid by everyone at the same rate: for each purchase, the tax burden weighs more heavily on the budgets of low-income households.
A possible fusion of IR and CSG in the corridors of the PS
In favour of the current reform to tax income directly at source, today there is again talk in the ranks of the governing Socialist Party (PS) of a possible fusion of IR and CSG. That does not bode well for greater tax fairness: behind the idea of thus rendering, the currently flat-rate, CSG “progressive”, looms the possibility of only making workers and pensioners fund the social welfare system. A right royal gift would be offered to the rich... and what of a sustainable future for the upkeep of health and pension schemes?
 Contribution Sociale Généralisée (General Social Contribution) and Contribution au Remboursement de la Dette Sociale (Contribution to Social Debt Repayment) – both payments towards the social welfare system.