Interview. FACE TO FACE. Taxes: who are the big winners and losers from the current tax system?

Tax, France and social assistance. The campaign to complete your income declaration was launched with great fanfare by Bercy on Thursday April 11, 2024. And already, the sweet music and the endless moaning around this annual deduction are starting again. Should it be increased, lowered, adjusted, or even eliminated?

There France would be one of the most taxed countries in the world, second behind Denmark according to figures published by the OECD. The French tax system, supposed to guarantee a redistribution of wealth, should in theory preserve fairness among taxpayers. What is it really ? At a time when the feeling of fiscal injustice reigns, is our system running out of steam? What recommendations to improve it? Who benefits the most?

Anatomy of a tax jungle with two economists with opposing ideas. Leo Charles, lecturer in Economics at Rennes 2 and member of Les Economistes Atterés, a collective created in 2010 to “propose alternatives to austerity policies”. And Philippe Creveleconomist and director of the Savings Circle and Lorello.

-: Simple question, who benefits most from the current tax system?

Philippe Crevel: To the most modest, very clearly. We must understand and approach the tax system as a whole: that is to say, with the question of taxes and that of all social contributions. France has one of the highest tax systems in the OECD, above around 45% of GDP (Gross Domestic Product).

Our system ensures a certain fairness.

Realize, spending on social protection (expenses linked to disability, unemployment, maternity, etc. Editor’s note) alone represent a quarter of GDP. It’s a lot.

In France, there is a strong tradition of public spending. Before taxes, the distribution of aid and others, economic inequalities are strong in this country. After redistribution, France became one of the most egalitarian countries in Europe.

Leo Charles : In the country, we seek to limit inequalities with redistribution and public services and not with income. This is why the average income of the richest 10% of individuals is 13 times higher than that of the poorest 10%.

But in the end, thanks to redistribution and public services, this ratio is only three.

Taxation in France achieves its objectives: nearly 60% of households receive more money than they give.

This success should not obscure the very large differences in terms of wealth holding. In our tax system, the latter is very poorly taxed and contributes to the massive increase in inequalities in our country.

Proportionally, who pays the most tax?

Leo Charles : Regarding all compulsory deductions (taxes and social security contributions), the French tax system is rather progressive up to the richest 10% of the population. Then the system becomes regressive, especially for the top 1% and beyond.

For what ? We need to look at the composition of the income of the ultra-rich. Proportionately, they pay less social security contributions since their income comes from capital (such as dividends, rent received, financial interest, Editor’s note) and not from work.

The richest households actually pay less tax than the middle classes. The tax rate is 46% for the richest 0.1% and 26% for the 0.0002%, the billionaires!

Then, there is VAT, this proportional tax: comprising a single rate regardless of income. Once again, the poorest pay more. Thus, for the poorest 10% of French people the effort rate is 3.5 times higher than the richest 10%.

Philippe Crevel: The tax system is quite progressive. For 99.5% of the population, it is even strongly progressive. 10% of the richest households finance 75% of the total amount of income tax: it’s a beautiful symbol! There are still inequalities. The average tax rate falls significantly for the richest 0.1% of French people. Which represents nearly 35,000 households in France.

The feeling of fiscal injustice reigns. There is a fairly demagogic and populist discourse about the rich in our territory.

The richest is the other, it’s always the one we point the finger at.

On VAT, yes, the poorest households pay proportionately more. But this tax represents 200 billion euros of gross income for the State to finance public services and make this system fairer. It’s very French to believe that the middle classes pay without ever receiving anything.

Is the redistribution fair? Does it benefit everyone equally?

Philippe Crevel: The redistribution is quite effective. From a statistical point of view, inequalities are low. On an individual level: the feeling is completely different. Some French people say they receive nothing, others say they pay too much tax. Faintness.

The redistribution system is not transparent enough. Also, many cannot get by and even live in dignity without being assisted. For the poorest 10% of French people, aid represents more than two thirds of their income. This system is a valve, a safety device, but also a power-assisted factory.

This system is a valve, a safety device, but also a power-assisted factory.

Leo Charles : 57% of people in France receive more than they pay in, including social benefits and public services. But, the redistribution is not equal according to income levels.

Thus, 85% of the poorest people are net beneficiaries of redistribution, compared to 49% around the median income or 13% for the wealthiest.

And once again, redistribution does not correct the wealth inequalities which are today decisive in explaining the widening inequalities in France.

How can the tax system be improved?

Leo Charles: It is necessary to rebuild consensus around tax, it is one of the bases for living in society. The middle classes must no longer have this feeling of paying for others or too much for public services which are deteriorating.

We should invest in ecological bifurcation and in quality public services.

This requires a fairer tax system: all income must be taxed with income tax progressively. Take care of tax loopholes which today cost us around 90 billion euros per year. And what about tax evasion which represents a shortfall of 80 and 120 billion euros per year? If the State provides the means, we could recover part of these sums.

In the short term, we must impose a tax on the super-profits of companies which have used the crisis to enrich themselves and their shareholders. This could bring in between 4.5 and 15 billion euros. We can also imagine the reestablishment of a renovated ISF which could bring us between 5 and 10 billion euros per year.

Philippe Crevel: Taxation is a living matter that must evolve according to society and the economy. Before, the state taxed doors and windows. Real objects and therefore easy to impose. The administration taxed salt because society needed it to preserve food. In a consumer society, we have moved to VAT. Salaries also had to be taxed.

Today, we are in a service and digital society. We must invent taxes for the 21st century^e century. And, we haven’t done it yet.

We need to better tax digital giants and data.

This is the raw material of our century.

When the Prime Minister, Gabriel Attal, says that he “wants to tax the annuity”, it is really a bad formula. The annuity must be abolished. In essence, rent is something dysfunctional, which places some in a position of domination. I’m liberal, I want money to circulate. Annuity means less growth. Less growth means less revenue, and ultimatelyit is less revenue for balancing the public accounts.

What assessment do you draw from Emmanuel Macron’s seven years of tax policy?

Leo Charles: His policy can be summed up quite easily: reducing taxes for the richest households and for large businesses. In France, income from work is taxed less than income from assets. And yet, the government continues to promote work in its speeches. It’s contradictory!

It is above all the affirmation of a political line: the belief in trickle-down. “I tax the rich less and this will benefit the entire economy. ” It does not work.

Emmanuel Macron persists in his logic, that of favoring the richest.

A study by the OFCE, published in February 2023, shows that Emmanuel Macron’s various tax reforms between 2017 and 2020 mainly benefited the richest.

Philippe Crevel: We cannot say that Emmanuel Macron is not coherent. From the start, he has assumed responsibility for his choices. He made the bet to promote supply, to encourage savings with the end of the wealth tax (ISF), and on financial products with the introduction of a single flat-rate levy of 30%. This tax created following the 2018 finance law for income from savings and capital excluding real estate. The objective? Simplify and reduce taxation.

These are not popular measures but he did it and he has not gone back. He wanted to make the country attractive, encourage the orientation of capital towards businesses. And all without increasing taxes. This was not the case with François Hollande, Nicolas Sarkozy or Jacques Chirac.

Still, I think he lacked courage during his first term. Why did he reduce income tax after the yellow vest episode? It was demagogic and these measures widened the deficit.

Comments collected by Raphaël Lardeur.

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