France’s ultrarich pay less tax than the rest, a new study finds

The effective tax rate for France’s wealthiest households is regressive, reaching just 2% of total revenues for the top 400 homes, a report published on Tuesday has found, contributing to a growing call to tax the ultrarich to finance the green transition.

This is the first time a study can prove the regressive nature of the French tax system for the wealthiest households, using yet-unexplored 2016 administration data.

According to the report published by the ‘Institut des politiques publiques’ think tank on Tuesday, income tax is a poor metric to capture households’ total income – including share ownership.

“We aimed to account for yet-undistributed company share revenues” that the ultrarich may own, the research’s authors told Le Monde and proceeded to create a new, more precise ‘economic income’ metric.

Revenues, when calculated under both metrics, show stark differences: where the 38,000 wealthiest households declare an average income of €895,000 a year when looking at income tax only, their ‘economic income’ actually stands at a €3.4 million average.

The same applies to France’s 75 most affluent households: their average income as per their tax declarations hovers at approximately €36 million, but their ‘economic income’, taking unlocked company shares into account, stands at over €1 billion.

This is because most of France’s wealthiest households are company shareholders and may even own them, according to the think tank. The income generated through shareholding is thus not subject to income tax but corporate tax instead.

This is “not neutral in terms of the overall tax burden” the report reads: where the tax rate for personal income tax can go up to 59%, it stood at 33.33% for corporation tax in 2016, for which data was made available to the researchers.

The report’s findings feed into a broader debate about taxing the wealthiest households at the French and European levels.

In 2021, the International Monetary Fund (IMF) encouraged governments to consider putting forth wealth taxes to help correct COVID-induced economic inequalities.

In March, a group of MEPs and economists argued in favour of a progressive wealth tax on the wealthiest households in Le Monde “in order to reduce inequalities while helping to finance the investments needed for the ecological and social transition”.

A report published two weeks ago by Jean Pisani-Ferry, former advisor of French President Emmanuel Macron, and economist Selma Mahfouz also recommends creating a “green” wealth tax to finance the ecological transition.

This new tax, which Economy Minister Bruno Le Maire rejected, would take the form of an exceptional 5% levy on the financial assets of the wealthiest 10%.

Such a measure is estimated to raise €150 billion over 30 years.

(Theo Bourgery-Gonse | EURACTIV.fr)