Is there any evaluation of solidarity tax impact in France?

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Romania's Government has changed recently and the new one tries to introduce a solidarity tax:

The Romanian Government wants to introduce a new type of tax called the solidarity tax, which will be paid by people who have monthly wages above RON 14,500 (EUR 3,200), said the new finance minister Ionut Misa yesterday.

Some argued that this somehow mirrors the solidarity tax (wealth tax / "ISF") from France (Romania's legislation is highly influenced by the French one).

However, I have read that in France, there were some discussions about removing it. Macron during his mandate as a economy minister suggested scrapping it:

French Economy Minister Emmanuel Macron has suggested that France should scrap its wealth tax and raise inheritance taxes instead, breaking a longstanding Socialist taboo and drawing the ire of Prime Minister Manuel Valls.

This article dives into the details of solidarity tax implementation in France:

In French, ISF means “solidarity tax on fortunes”. But there is very little solidarity, and the number of actual fortunes caught by it is small. As you would expect, anyone with real money finds ways round the tax. Its burden falls instead on those of middling income who cannot afford to pay clever advisers.

The wheezes used to avoid paying the tax are, of course, manifold. If you’ve ever wondered why French people have so many antiques and works of art in their homes, the reason is not just Gallic good taste. Assets over 100 years old, or created by hand, do not count towards the ISF. Other taxpayers make temporary “gifts” of their assets to relatives, without actually having to give them away for ever – though this procedure involves entering another potential fiscal whirlpool, France’s “gift tax”.

Question: is there a reliable source that assessed the solidarity tax impact upon the economy?

I find such an assessment really useful for countries that want to introduce such a tax, to better understand the possible outcome.

Alexei

Posted 2017-07-14T09:40:40.680

Reputation: 43 325

1After about 2010 there was a wealthy flight from france because of the tax burden but I'm not sure if a full study has been done. – discodane – 2017-07-14T14:15:44.107

"The wheezes used to avoid paying the tax are, of course, manifold." What a wonderful sentence. – ohwilleke – 2017-07-14T16:15:46.600

5You are comparing two different taxes: in Romania the tax seem to be aimed at people who earn a certain amount per month, whereas the ISF tax in France is aimed at people who own money and valuables. That is, even if you don't earn anything, but you possess, say, an expensive appartment in Paris, you would have to pay the ISF. Macron proposed changing the ISF to another kind of the same thing, aimed solely at homes and the likes, and therefore people who invest in companies would be exempted. It's still a work in progress though. – SdaliM – 2017-07-14T18:11:52.767

@SdaliM - yes, you are right. So, comparing them directly does not make sense. Any implementation of current France's ISF tax in Romania is next to impossible, as it would lead to a huge popularity fall for the party proposing it. – Alexei – 2017-07-14T18:18:18.407

I would suggest you rephrase your question then: are you more interested in what the Romanian government wants to implement, or are you more interested in the ramifications and impact of the French ISF tax? – SdaliM – 2017-07-14T18:26:48.953

@SdaliM - I am interested in how any implementation of a "solidarity tax" (or any form that resembles the form discussed in Romania) really worked, so that I know what to expect in Romania. I was tricked to use France's case because some politicians and analysts used it as a reference. – Alexei – 2017-07-14T18:39:51.883

There have been numerous studies and a lot of view taking on it, which are summarized in this French wiki article: https://fr.wikipedia.org/wiki/Imp%C3%B4t_de_solidarit%C3%A9_sur_la_fortune

– Denis de Bernardy – 2017-07-15T08:57:10.393

@discodane: do you have any source to support your claim about wealthy flight? – Taladris – 2017-07-16T16:24:12.147

You will probably have more luck comparing to Germany: afaik, in the former FRG there is a solidarity tax (on wages) in favour of the former GDR – Federico – 2017-07-18T14:16:28.467

Answers

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As far as I can tell, this solidarity tax is basically equivalent to introducing a higher tax bracket. This is quite unlike the French solidarity tax and in fact very similar to the way income tax works in most EU countries so the comparison with France does not seem particularly enlightening.

Income tax in most western European countries is structured so that income above a certain threshold is taxed at a higher rate, with the top rate somewhere between 40 and 60% (incidentally, the French income tax rate is actually not particularly high, it's other taxes and tax-like contributions that account for the relatively high level of government spending and revenue relative to the GDP). And historically, higher (progressive) income taxes haven't prevented these economies from growing and staying among the richest in the world.

By contrast, the Romanian tax rate is flat and relatively low so there is a lot of room to increase income tax, especially on high incomes, before you get anywhere close to something resembling the tax systems you see in western Europe. At the same time, the Romanian economy is obviously very different and the country does have a higher tax rate than its direct peers (I am thinking about Bulgaria, which has a 10% flat tax).

Relaxed

Posted 2017-07-14T09:40:40.680

Reputation: 24 058

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As SdaliM said, the ISF is not a tax on wages, but on estate; it cannot be compared to the Romanian tax project.

The tax project seems to be similar to what is known in France as the "Impôt sur le revenu" (income tax). It covers more than just wages, and it's progressive (the higher your income, the higher the imposition rate). Around 42 % of the French households are subject to this tax (source DGFIP).

In addition, since 2011, there is an extra tax for wages higher than 250 000 €/year: the "Contribution exceptionnelle sur les hauts revenus" (exceptional contribution on high incomes"), which add 3 to 4 % of imposition.

Gwen

Posted 2017-07-14T09:40:40.680

Reputation: 137

(-1) This is highly misleading in the multiple way. 45% is the highest bracket of the income tax, very few people pay anything close to that rate. Even with a taxable income over €1M (which puts you among the 10000 richest households in France), you pay slightly over 42%. In fact, the tax rate for the highest bracket of income tax in France is identical to that of Germany, much lower than that of the Netherlands, etc. – Relaxed – 2017-07-18T19:56:31.580

And just today, the TV was lamenting the fact that so few people paid income tax (using very confused reasoning and numbers but that's another topic) so basically the opposite problem. Historically, it's been rather low in France, with other things like the public pension and health insurance systems and other taxes like the VAT accounting for the relatively high level of government spending and/or revenue relative to the GDP (I am guessing that's what your 54.5% OECD figure refers to and that's not a tax rate at all and shouldn't be compared to one). – Relaxed – 2017-07-18T19:59:48.480

@Relaxed thanks for pointing that out, the 45% were with the CEHR included, that was not clear at all in my original phrasing, I hope it's better now. And, indeed, it's a raw approximation without any deduction. Please tell me if you see other issues. – Gwen – 2017-07-19T07:45:24.357

That's not my point, 45% is the marginal tax rate. It's technically true to write that the tax rates tends towards this but it is still highly misleading. This 54.5% is also a marginal rate so it turns out that your earlier contention was flatly wrong and the current formulation is misleading for the same reason. Importantly, the actual source is this FIPECO, not the OECD (incidentally “OCDE” is French) and I cannot follow how they arrive at this exact number. – Relaxed – 2017-07-19T09:02:33.643

A more even-handed way to present the same set of facts is that, in France, the rates of the income tax itself are low, direct income-related taxation is generally lower (in terms of overall revenue and compared to other taxes) and the highest marginal tax rate, while higher, is in the ballpark of other countries. When you look at it as a whole and realise that the highest rate only concerns very few very wealthy households, it's odd to single this out or to imply that France is very different from other European countries in this respect. – Relaxed – 2017-07-19T09:05:33.503