UNDERSTANDING THE FRENCH TAX SYSTEM

Between the closing of the state budget for 2009, discussion on environmental taxation and the controversy over the financing of the Solidarity labor income (RSA), the tax issue has taken center stage in France.

1. Who pays taxes in France?

Nobody escapes the samples taken by the public, whether businesses or households. If there are homes exempt from income tax because their resources are insufficient, they necessarily carry the value added tax (VAT) when they eat.

Similarly, the general social contribution (CSG), founded in 1990, is applied to all income including pensions, social benefits …

2. What do we call the tax burden?

The term “tax burden” has been precisely defined by the OECD (see Insights on next page) to enable international comparisons. It includes any payment, not voluntary, made to the public by a person or entity, without leading to any direct and immediate. In 2006, the tax burden reported nearly 800 billion euros in France.

Samples can be classified into three broad categories mandatory. First, the taxes to finance the state, which accounted for about EUR 300 billion in 2006, representing 16% of gross domestic product (GDP). They include taxes on personal income tax (PIT, 53 billion) and corporate tax (47 billion) but also indirect taxes on consumption: VAT has reported 153 billion and 40 billion TIPP. Not to mention the charges on which the most iconic heritage, the wealth tax (ISF), weighs 4.3 billion euros.

Second category: local taxes. In 2006, property tax on buildings, one on non-built residence tax and business tax generated about 71 billion euros.

Finally, contributions and social contributions to finance the welfare system (health insurance, old age, family branch …) totaled nearly $ 400 billion in 2006. In this group, the CSG has reported 76.4 billion.

3. Do we pay more taxes in France than in other developed countries?

According to a Senate report released last fall, “France is the fourth-highest tax burden relative to GDP, among the major OECD countries, behind Sweden and Denmark (whose rate exceeds 50% of GDP) and Belgium (45%). The UK recorded its side a rate of 37% against 26% for the United States.

The image of the French surrendering to taxes deserves to be nuanced. “Much of the gap (…) between developed countries is explained by the different coverage of social insurance systems,” noted already in 1998 a report by the Economic Analysis Council. In other words, France has opted for public funding of its social protection (unemployment, sickness …), while the United States refers mainly to insurance schemes in the private sector. Taxes are less heavy but the household budget must also bear insurance policies, often unaffordable for the poor.

This does not explain everything: Germany, where the welfare state plays an important role, has a tax burden (38%) well below France. “This difference can be explained by a lower burden of military spending in Germany, decrypts Eric Pitcher, tax specialist. But one might also think that our neighbor is better at managing its finances. “

4. Why some taxpayers manage to dodge taxation on income?

Only half of the 35.5 million French taxpayers pay tax on income. The family quotient which works like a tax benefit beyond the second child aimed at increasing the birth rate, partly explains this situation.

We must add to that a threshold of relatively high taxation, to spare the less advantaged homes. Among these, there are even 8.9 million people who receive a check from the tax administration under the employment premium (EPP), which can be considered a negative tax.

At the same time, tax loopholes (read the cons below Benchmarks) allow taxpayers particularly fortunate largely exonerated from tax on income, as demonstrated last June a report signed by the member Gilles Carrez UMP. This member of the Finance Committee of the Assembly has calculated that a hundred of the most affluent taxpayers were even exempt from all taxes on income. In addition, between 2003 and 2008, the number of tax shelters has risen from 418 to 486, and their cost has increased by 50 billion euros to 73 billion euros, or nearly 27% of tax revenue, according a report of Senator Philippe Marini.

To overcome this problem, the government agreed to include in the 2009 budget cap overall tax loopholes (see Cross , 19 September).

5. Are the middle classes  overtaxed?

Tax practitioners agree that the middle classes bear the brunt of the tax burden in France. First, because they are most numerous, although the concept of “middle class” is difficult to define. Then because they are both “too rich” to be exempt from income tax, but also “too poor” to take full advantage of certain tax loopholes or domicile in a tax-advantaged countries.

The new 1.1% tax on income from property (real estate income …) and investment income (dividends, life insurance …), to fund the RIAA, is emblematic in this regard: “The three to four million French concerned are those which have a net financial assets over € 20,000, noted economist Christian Saint-Etienne in La Croix, 28 August. These are not the richest, they are part of the middle class and upper middle and they will probably not be moving their money out of the country “because of this new tax.

Furthermore, says another expert, “the level of charges leveled at a fairly high level since the 2000s. Yet as more and more people escape the income tax, the same tax burden still rests on a smaller population. “In fact, today, 10% of French pay 75% of the proceeds from the IR.

6. How does the tax shield work?

Since 2006, the tax shield is intended to “protect” the taxpayers a tax grab considered excessive. First set at 60%, the rate of accumulation of different authorized direct taxes (IR, ISF and local taxes) was then reduced to 50% in 2007. The same year, the calculation also took into account the CSG and CRDS (contribution to the social debt). The new tax to finance the RSA will also be integrated, which has stirred controversy in recent weeks. The economist Jacques Le Cacheux (see following pages) considers that this device effectively amounted to “a cap or an exemption from the ISF, and we can consider that outright repeal of the tax on estates would have been more efficient and fair, insofar as the tax shield protects especially some large taxpayers. “

In the name of tax fairness, several MPs including Peter Méhaignerie (UMP, Ille-et-Vilaine) calling for a “during” this shield by introducing a “minimum tax” to ensure that nobody can totally escape the tax by the interplay of tax loopholes.

7. Does the tax system favor social justice?

A report by the Economic and Social Council in November 2005 stated that all the samples in France has “a little broadly redistributive nature” of national wealth, because the weight of progressive taxes (income tax, wealth tax …) weighs slightly against other taxes (VAT, CSG …) – the latter being regarded as less socially just (read Insights). In addition, income tax, paid by only 50% of taxpayers, has lost part of its escalation over simplifications and reductions.

Still, for Jacques Le Cacheux, “the French system is not so bad figure” when you consider all tax and social transfers, because “it is particularly beneficial to families with small children. “Conversely, he says,” in countries like the United States, where taxation is much lighter and much less redistribution, inequality has tended to widen over the past decades, many more than in France. “

Still, everyone acknowledges today that the tax system is increasingly complex, and therefore less accurate.

8. Taxes have been increased or decreased in recent years?

“The tax burden has remained fairly stable over the past ten years, fluctuating around 43.7%,” says the Senate report published by Philippe Marini, a year ago. However, the author continues, “successive governments have greatly reduced these levies since the late 1990s. Why this paradox? In fact, the rate of sampling may increase due to buoyant revenue, which tend to grow faster than growth. In these cases, tax relief comes in practice to limit the progression of the amounts collected from taxpayers.

Between 2002 and 2007, tax levies have shown, after deduction of additional charges, 10 billion euros, or 0.5 percent of GDP. The reform of the income tax has reduced its product relative to other taxes, the CSG or the burden on companies in particular. At the same time, reductions in charges were made to businesses, especially to cushion the transition to 35 hours. The share of CSG, meanwhile, rose, like that on local taxation which has increased from 4.1% of GDP in 2000 to 4.8% in 2005.

Going back further in time, “almost all the increased tax burden since the late 1970s from that of Social Security funds,” notes Senator Philippe Marini’s report.

The latest tax cuts are from the election of Nicolas Sarkozy in May 2007, particularly with the tax package, whose cost is estimated at about 13 billion euros per year at cruising speed.

Ultimately, the level of tax rates remains stable but the weight of each in total revenue has evolved.

9.Will Green taxes grow in the near future?

“Green taxes” are the eyes of Jacques Le Cacheux, “a modern tax instrument increasingly used in Europe, although France is lagging behind. This system, consisting of penalizing the purchase of polluting products and to give a rebate to consumers who pay attention to the environment, can guide with great flexibility for the state behavior of citizens. No doubt he should continue to grow, amid debate about its impact on the budget – should be neutral for public finances, or help raise some money?

In France, the success of the “bonus-malus automobile since January this year would cost the state money, which does not expect that the measure is so successful. As a result, Prime Minister Francois Fillon denied last week that any extension to other products.

10. Is it possible to lower taxes?

Certainly not in the immediate future. While Nicolas Sarkozy announced a four point drop in the tax burden over the next decade, the time is now stabilizing and a new “neither-nor”: “neither increase nor decrease. The current crisis is not the business of government to which many accuse of having blown his last cartridges for the tax package.

In the longer term, a tax cut also seems unlikely: public spending will necessarily remain an upward trend, mainly because of the needs of an aging population.

For many, cost containment is the only way out. But the general revision of public policies launched by the government for over a year allows net savings of six billion euros a year only, according to the Court of Auditors, a far cry from 12 billion in annual savings of 2012 to balance the public finances.