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French candidates on tax

by afew Fri Mar 30th, 2007 at 05:58:10 AM EST

In a diary last month (Why We Pay Taxes) Jérôme translated a petition launched by the French economics monthly Alternatives Economiques and backed by Libération, in favour of a progressive tax system. It has received over 40,000 signatures.

Alter Eco sent the petition to all the candidates in the presidential election and asked them for their point of view on progressive taxation in the French system, and what reforms they might want to carry out. Nine candidates replied (nothing from Schivardi, Nihous, or Villiers). There's a summary here (FR) and the full text of their replies here.

The candidates' replies are too long for me to translate in extenso, but here are some titbits:


"Major" Candidates

Jean-Marie Le Pen:

Nous avons donc prévu de ne pas remplacer 250 000 postes de fonctionnaires sur les cinq années du mandat : une économie de 8 milliards d'euros. Sur les moyens mêmes des services de l'Etat, nous économiserons 4,5 milliards d'euros et les subventions aux entreprises diminueront de 6 milliards. ...application de la préférence nationale aux prestations sociales par augmentation des cotisations pour les étrangers (gain attendu : 16,3 milliards d'euros) et programme de lutte contre la fraude à la Sécurité sociale (gain attendu : 5 milliards d'euros). L'allègement des charges qui pèsent sur l'Etat a ainsi été calculé au total de 70 milliards.

Our intention is not to replace 250,000 (retired) civil servants over the five years of the mandate: savings of €8 bn. On the means of the State's services proper, we will save €4.5 bn, and subsidies to businesses will go down by 6 bn. ...application of "national preference" to social benefits by means of increasing foreigners' rates of contribution (expected gain: €16.3 bn) and the fraud-fighting programme in the health insurance system (€5 bn). The lightening of costs that burden the State has thus been reckoned at €70 bn.

...une simplification radicale s'impose par une visibilité des taux marginaux d'imposition. J'ai opté pour le système le plus visible à quatre tranches : 0 %, 10 %, 15 % et 20 %. <...> l'impôt sur le revenu ... diminuera de 50 % en cinq ans, en commençant par les tranches les plus basses.

... a radical simplification (of the income tax) is necessary, by making the marginal rate visible. I have opted for the most visible system with four levels: 0%, 10%, 15%, 20%. <...> the income tax... will go down by 50% in five years, beginning with the lower levels.

Comment: This is the "nice" version, in which he says what he would do in a five-year mandate. Otherwise his programme has always been abolition of the income tax. With concomitant shrinking of the State. Except for a certain kind of State...

Nicolas Sarkozy:

...c'est un fait que les citoyens et les entreprises françaises sont soumis à des impôts plus élevés que presque partout ailleurs en Europe et dans le monde. Or, sur qui pèsent le plus ces impôts ? Pas sur ceux qui ont signé le manifeste. Arrêtons l'hypocrisie ! Les cotisations sociales, la CSG et la CRDS, la TVA, la taxe d'habitation et la TIPP, qui sont des impôts qui pèsent sur tous les Français, et donc surtout sur ceux qui sont les moins aisés, représentent 66 % du total des prélèvements obligatoires en France, quand l'impôt sur le revenu en représente 7 % et l'impôt sur les successions et les donations 1,2 %. Voilà pourquoi je redis, sans aucun complexe et sans aucune hésitation, que l'un de mes objectifs, si je suis élu président de la République, sera de réduire les prélèvements obligatoires, en particulier ceux qui pèsent sur le travail, d'en ramener le taux (44,4 % actuellement) à celui de la moyenne de l'Union européenne à 15 (40 %) et de rendre pas moins de 68 milliards d'euros aux Français, soit 2 500 euros par famille.

...it's a fact that French citizens and enterprises pay higher taxes than almost anywhere in Europe or the world. But who bears the burden? Not those who signed this petition. Let's stop the hypocrisy! Social contributions, CSG and CRDS, VAT, house tax and the tax on petroleum products, that are taxes that burden all the French, and therefore above all the least well-off, add up to 66% of the total tax burden in France, while the income tax runs to 7% and estate taxes 1.2%. That's why I repeat, with neither shame not hesitation, that one of my objectives, if I become president, will be to reduce the tax burden, particularly the part that weighs on labour, to bring down the rate (44.4% at present) to the EU15 average of 40% and to give back no less than €68 bn to the French, or €2,500 per family.

Comment: This is where you see that Sarkozy's job, apart from politician, is lawyer. When he wrote this, he was still Number Two of a government (and that goes back five years, and he was Minister of Finance in governments before that) that made considerable cuts in the income tax while doing nothing to reduce (or even letting slide upwards) indirect/proportional taxation. Now he makes out the people is groaning under indirect/proportional taxation. Hypocrisy? When you're coming out with a massively dishonest argument and your own hypocrisy is manifest, accuse others of it, it's quite an efficient cover.

It's interesting, otherwise, to note that Sarko is again claiming he will take 4 points of GDP off the tax burden, though his campaign and the UMP back-tracked on it as a way-over-the-top impossible promise. Elsewhere, he's saying it isn't part of his project. It's still not at all clear what his programme is... Except, by reading this little piece of aggressive smart-ass bullshit, we get confirmation that he doesn't intend to raise progressive taxes...

François Bayrou:

L'impôt progressif, c'est une correction des inégalités de naissance qui procurent aux plus aisés les opportunités les plus grandes, à l'école et dans l'enseignement supérieur, et dans la vie professionnelle. <...> Raison pour laquelle je propose que, dans l'immense effort que tous nos concitoyens devront fournir pour réduire la dette et les déficits publics, nous instaurions un plafonnement des niches fiscales. <...> Je souhaite mettre en place une imposition sur le patrimoine à base large (à l'exclusion de l'outil de travail et des oeuvres d'art), à partir de 750 000 euros, mais à taux léger (un prélèvement autour de 1 pour 1000).

Notre pays est confronté à un immense défi : il doit tout à la fois régler le problème de la dette et investir dans l'avenir, l'éducation, la recherche et l'innovation. <...> Tous ceux qui évoquent imprudemment la baisse des impôts ou, à l'inverse, leur augmentation, devraient y réfléchir à deux fois.

Progressive taxation is a corrector of the inequality of birth that hands the best-off the greatest opportunities, at school and in higher education, and in professional life. <...> Which is why I propose, as part of the immense effort that all our fellow-citizens must make to reduce the national debt and public deficits, we should put a ceiling on tax breaks. <...> I would like to set up a broad-based wealth tax (excluding capital/property in business, and works of art), from €750,000, but at a low rate (around 1 per 1,000).


Our country is faced with an immense challenge: it must at one and the same time settle the debt problem, and invest in the future, education, research, and innovation. <...> Those who call imprudently for the lowering of taxes, or, to the contrary, their rise, should think twice.

Comment: An immense challenge, to be shared by all: but Bayrou's fiscal suggestions are neither up nor down, just a couple of cosmetic changes. Like Sarko, he blithely ignores the fact that, recently (hence the Alter Eco petition) the income tax was reduced. So who will really make the effort he speaks of?

Ségolène Royal:

L'impôt progressif est l'un des piliers de notre modèle social et économique. <...> Or, aujourd'hui, cette situation est menacée, car notre fiscalité n'est que très marginalement progressive.

L'ordre juste, c'est un équilibre entre une fiscalité progressive et une dépense plus efficace. <...> Mon projet n'est pas d'augmenter les prélèvements obligatoires, il est de les rééquilibrer, pour mieux valoriser le travail et l'initiative, et lutter contre l'économie de la rente que la droite nous promet. Je m'oppose à toute réduction des droits de succession et je reviendrai sur le bouclier fiscal, si je suis élue. Il faut aussi s'attaquer aux niches fiscales, qui permettent à ceux qui sont les mieux informés de bénéficier d'allègements d'impôts en tous genres, sans que cela favorise réellement l'activité économique.

Progressive taxation is one of the pillars of our social and economic model. <...> However, today, the situation is under threat, because our tax system is only marginally progressive.

Fair order (l'ordre juste, her campaign slogan) is a balance between progressive taxation and more efficient spending. <...> My project is not to increase the tax burden, but to rebalance it, to increase the value of labour and initiative, and fight the rent economy that the right holds in store for us. I oppose any reduction of the estate tax and will go back on the tax ceiling (60% of income) if elected. It's also necessary to attack tax breaks, which allow the best-informed to get all kinds of tax relief, without it really encouraging economic activity.

Comment: She too is avoiding recent income tax reductions. The logic of what she's saying seems, however, to be that she would decrease the share of indirect/proportional taxation and increase by a corresponding amount progressive taxation.

The "Other Left" Candidates

Here's an interesting paragraph from Alter Eco:

Le texte de notre appel en faveur de l'impôt progressif sous ses différentes formes (revenu, fortune et successions) rappelait que « le marché est facteur de progrès parce qu'il permet à l'esprit d'entreprise de s'exprimer », tout en observant aussitôt que les inégalités qu'il engendre pouvaient menacer la démocratie si elles n'étaient pas corrigées par l'impôt et par la production de biens publics accessibles à tous.

Cette position a été vivement contestée par tous les candidats de la gauche de la gauche, dont on pensait pourtant qu'ils avaient tiré les leçons de la crise générale des économies administrées. Olivier Besancenot nous fait la leçon dès sa première phrase, Arlette Laguiller dès la seconde, Marie-Georges Buffet, pour sa part, ne remet pas directement en cause la dynamique du marché, mais c'est pour mieux insister, non sans raison, sur les ravages que produisent des marchés du travail ou financiers insuffisamment encadrés. Dominique Voynet, qui a compté parmi les premiers signataires de notre appel, est plus nuancée et rappelle pour sa part que « le marché est également générateur de destructions environnementales et de coûts sociaux » et que le progrès, à ses yeux, suppose la mise en place « d'une économie plurielle, où le marché côtoie une économie publique et un secteur puissant et organisé d'économie sociale et solidaire ».

Our appeal in favour of progressive taxation in its different forms (income, wealth, and estate) stated that "the market is a factor of progress because it allows the spirit of enterprise to flourish", while at the same time we remarked that the inequality the market creates could threaten democracy if it wasn't corrected by taxation and by the production of public goods available to all.


This position was sharply opposed by all the candidates on the left of the left, although we thought they had understood the lessons of the general crisis of administered economies. Olivier Besancenot takes us to task in his first sentence, Arlette Laguiller in the second, Marie-George Buffet, though she doesn't question market dynamics, insists all the more, not without reason, on the ravages caused by insufficiently-regulated financial and labour markets. Dominique Voynet, who was among the first to sign our appeal, brings in more nuance and says that "the market also generates environmental destruction and social costs" and that her view of progress is that it calls for "a plural economy, where the market exists side by side with a public economy and a powerful and organized social solidarity economy".

Comment: Once again I find that Dominique Voynet, whom I don't like and who is having a job getting off the 1% mark in the polls, quite often says the best things that are being said in this campaign. As for Alter Eco, though they're right about the socialist "administered" economies, they might tone down the blah-blah about "the market".

Those who read French may get more into the detail of what individual candidates said, I'm sorry I haven't time now, except to note that, of course, the hard-left candidates spoke in favour of raising progressive tax and reducing VAT (for the Trotskyites, reducing the TIPP or petrol (gas) tax too). Bové advocates the Tobin tax on financial transactions.

Display:

Spend, spend, spend, while pretending that you love markets.


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 30th, 2007 at 05:32:13 AM EST
The source: http://economist.com/world/britain/displaystory.cfm?story_id=E1_RRJNRDV

And more from today's edition:

A surprise rise in child poverty casts the government's strategy into doubt


TONY BLAIR'S most famous pronouncements on wealth aim at opposite ends of the income distribution. The prime minister once declared that Labour would abolish child poverty within a generation. He also said he had no burning ambition to make sure that David Beckham, a commodity with a sideline in football, earns any less.

In putting these two thoughts together, Mr Blair was sticking to a consensus that has held for the past 20 years. Broadly, this says that the rich can get as rich as they like, so long as the poor are getting better-off too.

However, new figures out this week suggest that the bargain isn't working. The number of poor children, as defined by the government, has grown by 100,000 in the past year. Furthermore, overall income inequality has grown too (see chart), despite hefty redistribution under Gordon Brown, the chancellor of the exchequer.


Not taxing the rich has only one result: the rich are richer. Maybe that's a legitimate goal, but it should be clear that it's the only result. Prosperity for others is not included.


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 30th, 2007 at 06:52:47 AM EST
[ Parent ]
As you know, I tend to give Brown some credit on that, though.  He may have kept GDP in the black with all that spending, and God knows a few cities outside of the South could use it.  But he does need to get his act together.  If Labour can get Britain out of Iraq and hold spending lower than GDP growth, he'll close the gap fairly soon.  The deficit is less than 3% of GDP, -- and, more importantly, I believe it is now lower than the GDP growth rate -- so I don't think it should be a terrible concern.  Work needed?  Yes.  Something to flip out over?  No.

The rise in the Gini coefficient puzzles me, though.  The minimum wage has been rising strongly -- now higher, in pounds, than its American counterpart (at the federal level) stands in dollars.  And everything I've read shows real wages have been rising at reasonably strong rates, somewhere in the neighborhood of 2-3% each year, although probably slower now with higher inflation and more slack in the labor market.

You can, after all, have more inequality while also having gains to the working and middle classes.  The concern is the American case for most of the last five or six years, in which the rich get richer while the working class and a good chunk of the middle class see no real gains in wages.  The differences in healthcare-related concerns, as I noted the other day, shouldn't be neglected either.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 30th, 2007 at 09:50:46 AM EST
[ Parent ]

And everything I've read shows real wages have been rising at reasonably strong rates, somewhere in the neighborhood of 2-3% each year, although probably slower now with higher inflation and more slack in the labor market.

The problem is that in the UK a lot of people do not work full time - in fact, it is one of the countries with the lowest average working hours (I had a nice graph showing this but cannot seem to find it). so if wages increase but the number of hours per worker go down, it does not help.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 30th, 2007 at 10:24:17 AM EST
[ Parent ]
Good stuff.  Thanks, afew.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 30th, 2007 at 09:55:48 AM EST
Indeed

A pleasure


I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Mar 30th, 2007 at 11:37:01 AM EST
[ Parent ]
from Royal:
will go back on the tax ceiling (60% of income) if elected
 Thanks afew.  great summary.  If I'm understanding correctly, this means the highest marginal tax rate would rise to 60%?  Do you have any idea at what income level this would take place?

I would say this would be very negative (depending on what income level it takes place) on growth in the economy.  we've had discussion on the website over the past about the Laffer curve, and how in general most of us don't believe their is much of a curve unless you get at very high levels of taxation.  I think 60% will qualify as high levels of taxation, and raising rates to that level will have a negative effect on economic growth.

can people just move to a lower tax environment in another part of Europe?  or is that legally difficult to do?

by wchurchill on Fri Mar 30th, 2007 at 01:34:44 PM EST
No, the "ceiling" is a ceiling on tax / income introduced by the current government. You can reach it only with having low income and paying the wealth tax, so it's a measure for may be 5000 people.

Marginal tax rate on income (capital and work) is much lower. In France, if you decide to donate up to 6.8% of your income before tax to charities (as I do), your marginal tax rate is 26.8% (you can deduce 66% of your donation capped at 20% of your income, and the marginal tax rate is 40%).

In the same tax law the government introduced a floor, just like the AMT and the "ceiling", but the constitutional council said the floor was too "complicated" so unconstitutional but the ceiling was fine.

Same rule with max replaced by min.

Yes this is totally idiotic (and I was furious), but the then president of said council was a great creator of tax exemption when he was member of parliament, ...

by Laurent GUERBY on Fri Mar 30th, 2007 at 03:03:57 PM EST
[ Parent ]
What I translate by "tax ceiling" is literally in French "tax shield". It means that a citizen cannot be taxed (all direct taxation included) above 60% of her/is income for a given year. A level that could be reached by local taxes + income tax + wealth tax.

This "ceiling", recently introduced (2006), tends to negate the wealth tax on the wealthiest. People of very high net worth are generally in a position to approximately fix their taxable income level, knowing they will pay 60% of that in tax - they thus set their tax contribution themselves, and avoid most of the wealth tax they'd be liable for. It's widely seen as a tax break for the very rich.

Sarkozy intends to bring the ceiling down to 50% of income. Royal says she will abrogate the whole measure.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Mar 30th, 2007 at 03:49:25 PM EST
[ Parent ]
there are also capital gains taxes and france, non?
by wchurchill on Fri Mar 30th, 2007 at 07:07:45 PM EST
[ Parent ]
Let's just say that capital gains can be "externalised" to another country with less tax on them, even for capital in France...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Fri Mar 30th, 2007 at 08:00:27 PM EST
[ Parent ]
Yes there's capital gain but there are many ways to lower them. For example, I pay 11% capital gain tax for most of my equity gains by using a "Plan d'Epargne d'Entreprise" (where I buy my company new shares at a preferential price and get the low tax if I keep them five years, and the income tax itself is zero plus 11% of "social contribution"). You have also "Assurance Vie" (low tax after 8 years). You have also new retirement plans (PERP and PERCO). You have also "prevelement libératoire", on fixed income (which includes some "properly" structured equity derivatives but I diverge), tax is capped at 27%. You have also exemption and negative tax (yes negative) for investing in "innovative" companies. You have also no tax when you sell less than 20 000 euros per year. You have also when you buy your own company shares with debt (one of the French richest man pay no taxes at all).

And that's just what I know about and I haven't looked actively.

by Laurent GUERBY on Sat Mar 31st, 2007 at 04:26:16 AM EST
[ Parent ]
What if a middle or upper middle class person bought a stock on the French stock exchange--not his own company, and not in a protected account of any kind, but just made an investment in a French company.  Let's say he invested 100,000 euros and the stock did well, and he sold it two years later for 200,000 euros.  what would he pay in taxes?  In the US as an example, a similar person would pay 15% capital gains tax from a Federal perspective; and if he lived in CA or NY, an additional 10% state income tax.  So the CA person would be $25,000 in tax on the $100,000 gain.

Thanks.

by wchurchill on Sat Mar 31st, 2007 at 01:16:21 PM EST
[ Parent ]
I believe the capital gain would be taxed at 27% (16% capital gain tax + 11% social tax).

Even without "protected accounts", you have two ways to pay less or zero tax:

  • if you sell less than 20 000 euros per year of stock, the tax plus social tax rate is exactly zero, so if you rebalance and/or get out "slowly", no tax at all. Note that there is an idiotic gap effect, at 20 001 euros you pay 27% on capital gains. If you can justify a special event like unemployment you may go above 20 000 euros but you have to negociate. After tax and couting social help median yearly income in France is a bit less than 25 000 euros.

  • if you keep your stock after 6 year the capital gain tax is 21.7%, 7 year 16.4%, eight year and after 11% (new law).

This is uncommon as most people just use the protected accounts (you can put up to several thousand euros in there without really annoying constraints).

(I'm just using google.fr here, I'm not a specialist...)

by Laurent GUERBY on Sat Mar 31st, 2007 at 01:44:44 PM EST
[ Parent ]
thank you for doing this.  So the US and France are different, but bottom line, maybe not so different on capital taxes.  The 27% would compare to 25% in the US, for many large states such as California and New York--US lower in some states, like Nevada with no state income tax.

both have some protected account features, the ones you have mentioned before plus the benefits for smaller sales annually.  US has ira's and 401k's that have their biggest benefits (% wise) in the middle class and below--as long as people choose to use them.

I'm under the impression that fewer in France invest in stocks, however.  In the US it's well over 50% now.  I'm kind of assuming that French pensions are better than US social security, and therefore the French have less reason to invest.  Is this your impression as well--on both points?

by wchurchill on Sat Mar 31st, 2007 at 04:09:19 PM EST
[ Parent ]
I believe direct ownership of stocks is about 6-7 millions people in France (10% of the whole population).

But if you look at Assurance Vie, 59% of households (22 millions people) have position in Assurance Vie (can be bonds or stocks or whatever - I have some commodities and derivatives in mine).

http://www.cnp.fr/Epargne/Magazine/art_1793.htm

There are about 7.5 millions PEA (plan d'epargne en action) in France, 59% of it is in index/managed fund (OPCVM) and 41% in direct stocks.

http://www.lemoneymag.fr/v4/fiche/s_Fiche_v4/0,5382,13303,00.html

I don't know how many people end up owning stock directly or indirectly in France.

Where did you get the US data from?

by Laurent GUERBY on Sat Mar 31st, 2007 at 06:32:32 PM EST
[ Parent ]
It's talked about quite a bit in the US.  I just googled and here is the first hit, which happens to be from business week in2005 and quotes 50%.  Recently I've heard the number of well over 50%--which probably meant 51%--if it was 55 they would have said 55%.

I guess in American lingo though, we probably would count that Assurance Vie holding as stock ownership--that is if it's like our ira's and 401k's.  In these accounts you have a choice as to how much money to put in, (though there is a maximum), and you have choices as to how to invest the money.  Choices may range from almost all choices (for example I own 10 stocks in individual companies and three mutual funds in an IRA), to some company plans where you could be limited to choosing between 5--10 mutual funds.  So if Assurance Vie is like that, we would call that direct ownership.

by wchurchill on Sat Mar 31st, 2007 at 07:24:06 PM EST
[ Parent ]
Well may be then France has more than 60% stockholders...
by Laurent GUERBY on Sun Apr 1st, 2007 at 06:05:26 AM EST
[ Parent ]
my french is not great, and as I followed along the best I could, it sounded like an American life insurance policy.  Wikipedia was in English, and confirmed that.  These vehicles would not be included as direct stock investment in the US.  In the US they provide a multiple service of making payouts to your beneficiaries when you die, and if you live a long time they will provide some benefits.  In the US they do not allow you to select specific stocks, or mutual funds.  They really don't allow regular management of your portfolio.  Nor do you get the full return on your investment, since a big part of the benefit is the safety they provide for one's family in case of premature death.
by wchurchill on Mon Apr 2nd, 2007 at 02:02:22 PM EST
[ Parent ]
French "assurance vie" has no longer anything specific about death events, it's just a tax lowering mechanism. I can get my money out when I want. It also has zero inheritance tax up to some amount to someone of your choosing.
by Laurent GUERBY on Wed Apr 4th, 2007 at 06:26:39 AM EST
[ Parent ]
Boy this does seem like a crazy law.  If someone is wealthy, it effectively means that they should have a low paying job, or somehow show very little income, so that the 60% ceiling would be a very low number.  
by wchurchill on Sat Mar 31st, 2007 at 01:20:07 PM EST
[ Parent ]
This law is just a way to repeal the wealth tax without officialy repealing the wealth tax (which would anger french voters).

Plus it has the side effect of lowering contribution to social tax based on salaries since wealthy people will now get very low salary.

Welcome to France under a right-wing government :).

by Laurent GUERBY on Sat Mar 31st, 2007 at 01:49:53 PM EST
[ Parent ]


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