It would however be a serious economic and political mistake. This is a period in which assets prosper, salaries stagnate and society is in crisis – this is not the time to bestow gifts on the most wealthy. What margins there are for manoeuvre should be devoted to other priorities: easing the fiscal and social burden on labour (the financing of our social protection weighs too heavily on wages), and investment in training and research.
Above all, the taxation of wealth deserves close consideration and a comprehensive reform, which should take into account not only the existing progressive wealth tax on top wealth holders (ISF, impôt sur la fortune) but primarily the property tax, which in France as in all countries is by far the main tax on wealth: it generates over 25 billion Euros in revenue as compared with 5 billion for ISF. The property tax is a tax which is extremely heavy and unfairly distributed for the millions of people seeking to become property owners and it is regrettable that politicians on the right, and sometimes on the left, only have their sights on ISF taxpayers. By bringing these two taxes closer together, we could establish a unified and progressive tax on net wealth, taking into account at the same time real-estate property, financial assets and debts. This would enable a reduction in the tax burden on the lowest incomes and promote the mobility of assets.
Let me begin by reminding that in 2016 French households had over 10 billion Euros in assets (net of debts), or an average of almost 200,000 Euros for each of the 50 million adults. The distribution around this average is extremely unequal. The poorest half of the population owns barely 5% of the total, as compared with the richest 10% who own 60%. Amongst the 50% least well endowed (below 100,000 Euros in net wealth per adult) along with the next 40% (between 100,000 and 400,000 Euros) we find many households which are heavily indebted, often for increasingly long periods, given the price of property. We also note that the concentration of assets remains very high within each age group (for example, it is almost as high amongst the over 60s as it is for the population as a whole).
In total, out of the 10,000 billion Euros of net assets, property corresponds to almost 5000 billion (6000 billion for the gross value of housing from which 1000 billion has to be deducted for loans), financial assets amount to 4500 billion Euros (life insurances, shares, bonds, saving accounts and bank deposits), and the professional assets of the self-employed to over 500 billion.
Now what about the taxes on real estate and assets? The wealth tax (ISF) applies to taxpayers who have over 1.3 billion Euros net in assets; the tax rate is progressive rising gradually from 0% to 1.5% (above 10 million). There are many exemptions and allowances (for example, 30% on a primary residence) and the tax applies to a bare 1% of the population. Given the prosperity of this social group (approximately 25% of the total assets held by the richest 1%, or 2500 billion Euros), the revenue nevertheless represents just over 5 billion Euros, or a tax rate of barely 0.2%.
The property tax follows a different rationale since it is based on the whole of the real-estate property-owning population. The revenue has risen steadily in recent years and now stands at 25 billion Euros, or almost 0.5% of the value of the goods concerned. In principle, the property tax is proportional (with huge local variations): everyone pays on average 0.5% of his or her property (or 1000 Euros per year for property worth 200,000 Euros and 5000 Euros for a property worth a million). But, as the financial assets and the debts are not taken into account, the system is in reality highly regressive. For example, a person owning property worth 200,000 Euros and with a debt of 150,000 Euros (or net assets of 50,000 Euros) pays the same property tax as a person who inherited the same property and who also holds financial assets amounting to 300,000 Euros (or net assets of 500,000 Euros).
This absurd situation is explained by the fact that the property tax was created over two centuries ago, as were the very heavy systems of ‘property tax’ in force in the United States and in most countries, at a time when property was predominantly held in the form of land and real estate, and when financial assets and debts barely existed.
It is more than time to update this venerable tax, beginning by unifying the rates and bases of taxation at national level (an additional source of injustice) and by introducing the deduction of debts and taking financial assets into account. At the end of a five-year term of office marked by the Cahuzac affair and the Panama Papers, it is also necessary to introduce more transparency into wealth declarations. Those should indicate the amounts of financial assets transmitted to the administration by French and foreign banks, and the same should apply to declarations pre-filled-in by the authorities. Let’s hope that the forthcoming campaign will enable us to think outside the box and have a real discussion about the taxation of wealth.