In March, the French government finally announced it is to scrap the so-called tax shield, 'le bouclier fiscal', which caps yearly private tax payments at a ceiling of 50% of yearly income. The controversial measure, which President Nicolas Sarkozy previously vowed would stay, has above all benefited the very wealthy, who account for by far the largest part of the 591 million euros paid back in refunds under the system for 2009 tax returns alone. But, as Martine Orange argues here, the new tax reforms due to become law by this summer do little, if anything, to change an inequitable system that has scandalized public opinion.
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Championed by President Nicolas Sarkozy immediately after he took office in 2007, the tax shield, or bouclier fiscal, caps the yearly tax liable to be paid by households at 50% of their income. In short, it establishes that the total sum of all income tax, property tax, wealth tax and social charges cannot exceed 50% of gross yearly income (after abatements).
But from one year to the next since its introduction, the figures concerning the beneficiaries of the tax shield have consistently demonstrated the same perverse effects of returning hundreds of millions of euros in lost taxes to France's wealthiest few. Statistics from early estimations concerning the tax shield for 2010 returns, just released by the French finance ministry, confirm an ever more generous treatment of the seriously rich which, President Sarkozy has long claimed, avoids them leaving for a tax exile abroad.
According to the ministry's figures, a total of 14.443 tax-payers benefited from the ‘tax shield' in 2010, compared with 18.764 in 2009. Despite this more than 20% drop in numbers, there was no proportionate fall in cost to the public purse; 591 million euros were paid back to individuals under the tax shield in 2010, compared with 674 million euros in 2009.
For while the number of beneficiaries fell last year, the average amount paid back increased by 13%, to reach an average 40,908 euros for each beneficiary. The paradox of this is that this increase in refunds was based on tax returns declared for 2009, at the height of the financial crisis.
Those who benefited from the tax shield can be divided into two categories. On the one hand, representing 47% (about 6,800 households) of all those who received refunds under the tax shield system, are lower-income earners who can benefit from refunds due to the disproportionate level of local and property taxes they pay. A significant proportion of this category, with a declared yearly income of less than 3,400 euros, are made up of retired people whose properties are subject to high yearly taxes because they sit in areas particularly affected by the property price boom. Together, this category received 18 million euros in refunds, representing 3% of the total ‘tax shield' hand-outs. Just more than half of them, however, shared a total of 2 million euros in refunds, representing an average of 596 euros each.
On the other hand is a category of particularly pampered individuals, numbering 925 in 2010 -slightly less than in 2009 - who declared taxable incomes of more than 45,000 euros per year and a personal wealth of more than 16.5 million euros. This handful of the wealthy accounted for 60% (354 million euros) of all tax shield refunds in 2010. That is equivalent to an average 381,000 euros per household, although this average figure is far from the whole picture.
Just how many individually received sums such as the 30 million euros paid back to L'Oréal heiress Liliane Bettencourt? That information is secret, and even the French parliament's Finance Commission was last year only able to ascertain that the country's top ten tax payers had, on average, received tax shield refunds of 7 million euros each. In all probability, several will have in fact received much vaster sums.
A loss of 2 billion euros
A move officially announced two years ago to place new ceilings on certain types of tax breaks should have led to the eradication, or at least a significant limiting, of this vastly disproportionate system. Yet there are still people in France who have a private wealth of more than 16.5 million euros and who declare a yearly income of less than 3,467 euros. They numbered 32 in 2010 (compared to 17 in 2009), and together they received 5.4 million euros in tax refunds, representing an average 168,750 euros each.
This shocking situation, criticized by the opposition left parties but also now by members of President Nicolas Sarkozy's ruling mainstream right, is not addressed by the government's proposed tax reforms. For while budget minister François Baroin has announced an end to the tax shield programme, he also intends to soften the ISF1 wealth tax, to which some 600,000 households are currently subject to. Given the changes announced, notably the removal of any progressive tax rate, the new wealth tax will serve above all the interests of the very wealthy. According to the government's own calculations, the 4 billion euros currently received by the state from ISF wealth tax contributions will fall to 2.3 billion euros after the reform.
The public purse is set to shrink significantly over the coming two years, beginning with the ISF modifications to be introduced this year. Officially, this is a priority in order to protect home-owners from the sharp rise in property prices2, and which has catapulted less well-off households into the wealth tax bracket. The entry point for liability to wealth tax currently stands at wealth of a value of 700,000 euros, and this will be raised to 1.3 million euros.
Meanwhile, the tax shield will be continued up until and including the 2012 tax returns - which are returns on income and wealth recorded throughout the previous year. The cost in lost tax contribution payments will amount to about 2 billion euros this year and next. The government has detailed no plans to counter the loss to the treasury of about 2 billion euros this year and again in 2012.
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1: ISF : Impôt de solidarité sur la fortune
2: The government has estimated at almost 300,000 the number of households that have been driven into the ISF wealth tax bracket over the past ten years by the sharp rise in property prices.