The richest French pay proportionally less taxes than others, according to the IPP

Europe 1 with AFP 11:59 am, June 06, 2023

The incomes of the 37,800 richest French households are proportionally less taxed than those of the rest of the population, says a study by the Institute of Public Policy (IPP) released Tuesday, which however considers the reintroduction of a wealth tax ineffective. "All personal taxes remain progressive (proportionate to income, editor's note) until a high level of income," observe the four authors of the PPI note, based on data from the year 2016.

But they note "a strong regressivity of the overall tax rate" once crossed the threshold of the 0.1% of the richest French. These 37,800 wealthy households, who receive more than 627,000 euros annually, have an overall tax rate of 46%. But this rate decreases as the incomes of these ultra-rich increase, reaching 26% for the 75 wealthiest tax households.

Not a French exception

This is explained by the composition of income: those of the richest French come mainly from companies' undistributed profits, which are therefore subject to corporate tax (IS) rather than income tax (IR). "This transfer from a base of income taxable to the IR to a base of income only taxable to the IS is not neutral," insists the IPP. "In this way, the rate of taxation based on personal income and wealth, located at the highest around 59%, is replaced by the much lower rate of corporate tax, 33.33% in 2016" (and 25% currently), explain the authors.

However, this is not a French exception. Studies conducted in Sweden, the Netherlands and New Zealand indicate "a form of regressivity at the top of the income distribution". While a recent report by economist Jean Pisani-Ferry suggested temporarily restoring a form of wealth tax to finance costly investments in the ecological transition, this type of levy "has not been able to correct the regressivity we document," warn the authors.

Recent measures not taken into account

This track of a return of the ISF discarded, the IPP considers "possible to tax the undistributed income of the holding companies to the personal income tax" to capture part of the resources of the ultra-rich who escape tax. "If the taxation of the holding company proves to generate new forms of optimization, we could consider the taxation of shareholders who are natural persons resident for tax purposes in France on all the results not distributed by the controlled companies," adds the Institute.

The study does not take into account the effects of reforms that have occurred since 2016, such as the replacement of the ISF by a tax on real estate wealth or the introduction of a 30% flat-rate levy on capital income.