A plan to reduce the taxes on households by 7.5 billion euros
In his letter to the French people, the President of the Republic asked them to formulate ways of changing our tax system: “How can we make our tax system fairer and more efficient? ” Here are our proposals.
They will be balanced out by cuts in spending that we will present in our next study in March 2019. The iFRAP Foundation's strategy aims to restore room for manoeuvre and enhance the attractiveness of our economy, to encourage our fortunes, our creators and our talents to come back to France. However, we have focused this study on the burden of direct taxation that mainly affects private individuals (and to a lesser extent, companies subject to the income tax) and households.
The tipping mechanisms are complex: the overall tax burden must be reduced whilst at the same time implementing a policy of increasing the tax base for income tax. In this regard, new elements have already been introduced into the debate by the current Government with regard to direct taxation:
- total exemption from housing tax for all households by 2020-2021. The cost of this operation should represent an additional reduction of 11.2 billion euros compared to 2019 (do not forget that the total cost of abolishing the housing tax would amount to 24.5 billion euros in 20207) if it is not compensated for by a rise in the associated land tax on developed land (TFPB) or any other alternative cash inflow, and the cost of the measure is fully covered by the general government in the form of savings;
- abolition of part of the generalized social security contribution (CSG) increase for pensioners (1.5 billion in 2019), a measure theoretically already pledged by equivalent undocumented management savings.
After people’s exasperation with the tax system when François Hollande was in charge and the crisis of the "yellow vests movement" (which we must remember, started in response to the increase in green taxation especially on fuel, seen as the last straw for many households), it is high time to curb the pressure of direct taxation on households: it is even possible to reduce these direct levies by 7.5 billion euros within five years while sharing out the load more evenly.
The steps to be followed are:
- introduce an overall tax cap of 60% for all direct taxes, i.e. a saving of - 1.4 billion euros for taxpayers in annual terms;
- introduce a policy to rationalize and reduce income tax, which includes:
- a cap on the family quotient of 3,000 euros per half-share of quotient (a saving of 2.17 billion euros for households);
- align the flat-rate tax (PFU) on movable capital income with the level of the marginal rate of corporate income tax lowered to 25%.
The PFU product can be estimated at 1.4 billion euros. Dropping the flat-rate tax from the current 30% to 25% should represent a "drop" in the PFU income tax contribution from 12.8% to 7,8%, an additional saving of 235 million euros;
- a further cut in taxation related to holding and transferring capital. This should be done by abolishing wealth tax on personal property assets (IFI) and exit tax, i.e. gains for households of - 1.533 billion euros and 34.08 million euros (income tax and social levies). Regarding the drop in capital transfer tax, we propose a reasoned cut of - 7.487 billion euros to virtually divide their amount by two and to get closer to the European average (transition from 0.6 to 0.3 points of GDP);
- study the option of introducing a flat-rate tax on property revenues at a rate of 25%, after joining an approved management centre (measure not quantified). Aligning taxation between movable and immovable income would highlight the productive nature of the latter.
In parallel with the granted cuts, consolidation of direct taxation must be envisaged for an effort of 5.5 billion euros. The aim is to make the tax effort more equal, as it must no longer be based mainly (52%) on the last decile: such an approach pushes the wealthiest French to leave France, which is harmful for two reasons: tax exile deprives France of potential investments in the French economy and these exiles have a negative impact on public finances, because it takes away a non-negligible part of their revenues.
To break this vicious circle, the following must be planned:
- partial abolition of the tax relief mechanism for 3.6 billion euros (tax relief accounts for 4.52 billion), linked to the reintroduction of an income tax bracket at 5.5%, to which a change in the scale limits corresponding to + 1.7 billion euros would be added;
- reinforce the link between tenants and territories by including the property tax on developed land (TFPB) in the restrictive list of charges that can be recovered by the owner (as part of the tenancy of article 23 of law n° 89-462 of July 6, 1989 on improving rental relations) from a future date: January 1, 2020. We evaluate the potential product at approximately 117 million euros.
Ultimately, the net gain for households would be 7.5 billion euros on direct taxation of income and capital.