Here is the story of a French specificity in Europe that has been unleashing passions in the country since 1976.
Should we restore the solidarity tax on wealth, transformed by Parliament on October 20, 2017, into a tax on real estate wealth (IFI)? Very criticized by the left, which denounced a favor to the wealthiest taxpayers, this change was to lead to a loss of income of 3.2 billion euros for the State – the ISF, paid until then by 350,000 taxpayers, having brought in 5 billion euros in 2016 – but in return boosting investment in the country’s economy and its SMEs. Another argument of the reform, to suppress the tax reasons of the departures abroad of the great fortunes, called “tax exile”.
On this point, the reform symbol of macronism, one of the main grievances of the yellow vests, seems to have effects in terms of attractiveness. According to the report unveiled on October 8, 2020 by the evaluation committee led by France Stratégie, the replacement of the ISF by the IFI resulted in a number of returns from wealthy taxpayers exceeding the departures. Never seen. Admittedly, it is only a matter of a few hundred taxpayers, but the signal is encouraging.
France is the only European country to still tax heritage. In France, the ISF, formalized by the right, set up by the left and partially abolished by Emmanuel Macron, has become a real tax taboo that has been the subject of controversy for nearly half a century. Penalizing investment, growth and employment according to some, perceived by others as a redistributive tax contributing to the social, environmental or economic objectives of the moment, this tax, the virtual elimination of which is qualified by some as “original sin “of Emmanuel Macron’s five-year term, has continued to evolve according to political alternations. Here is his story.
The idea of taxing the rich in order to give to the poor is not new. Already, in the Middle Ages, in England, a certain Robin des Bois robbed the rich for the benefit of the poor by returning to the people the money of unjustly levied taxes… In France, the idea of taxing fortune emerged in 1914 More than a century ago, the radical Joseph Caillaux tabled a bill to institute an annual wealth tax. The text will never be adopted. It was not until 1976 that the first wealth tax project was formalized. As strange as it may seem, it was a right-wing finance minister, René Monory, who initiated it.
During the legislative elections of 1978, François Mitterrand defends, within the framework of the common program of the left, the taxation of heritage. But the idea does not appeal to the left. The same year, the centrist Raymond Barre, Prime Minister of Valéry Giscard d’Estaing, provides for the study by Parliament of a levy on large fortunes.
François Mitterrand’s victory in the 1981 presidential election and the arrival of the left to power transformed the essay. In 1982, the government of Pierre Mauroy implemented the creation of a tax on large fortunes (IGF) exceeding 3 million francs (450,000 euros), taxed at 0.5% (from 3 to 10 million), at 1% (from 5 to 1 million), and 1.5% (over 10 million). Works of art are exempt. Rather symbolic, in 1983 the IGF concerned only 100,000 people, and brought in 5.3 billion francs, for a management cost of around 1% of its output.
However, the measure unleashes the right-wing opposition and the wrath of the employers. The CNPF (the MEDEF at the time) is demanding an exemption from the IGF for company directors who own less than 25% of the shares of their companies. The left-right and right-left ping-pong on “the tax of the rich” has only just begun.
As expected, the return of the right to business, with the arrival of Jacques Chirac at Matignon in 1986, during the first cohabitation of the Mitterrand presidency, sounded the death knell for the IGF. The 1986 finance amendment bill repeals the tax on large fortunes from January 1987, along with a reduction in the income of small taxpayers.
The underlying idea, a bit like with Emmanuel Macron today, being that the IGF prevents growth, by dissuading the richest from investing in the country’s economy. The new government also provides for an amnesty for the repatriation of capital illegally held abroad, subject to payment of a 10% tax.
Perceived in the public opinion as a gift to the rich, the suppression of the IGF will not bring luck to Jacques Chirac who will lose the presidential election of 1988, vis-a-vis François Mitterrand: the political curse of the “tax on the rich” “, was born. The outgoing socialist president is re-elected by proposing tax relief for companies that reinvest their profits, and the reinstatement of the IGF. Presented as a redistribution tool, the tax return should finance the social minimum intended for the poor, the minimum integration income (RMI).
On July 3, 1988, Prime Minister Michel Rocard announced in an interview with RTL the return of the tax on large fortunes, renamed “solidarity tax on wealth” with a threshold of 4 million francs and a maximum rate below 1%, capped so that the total tax (fortune, income) does not exceed 70% of the taxpayer’s income. A first draft of a “tax shield”. The ISF was restored as of January 1, 1988. The State estimates the expected revenue from the tax at 4 billion francs, which concerns 110,000 taxpayers. Work tools, works of art and the forest are exempt.
As soon as he returned to power in 1995, with the election of Jacques Chirac as President of the Republic, the right put the ISF back on the road. Not to remove it, the lesson is learned, but to modify its perimeter. The cap having opened a breach for tax optimization, the tax department sounded the alarm.
Paradoxically, it is a right-wing prime minister, Alain Juppé, who limits the cap on the ISF by adopting, in 1995, the rule of “uncapping the cap”. With the result of a tax aberration which will give rise in the 2000s to a certain number of disputes against the State, on the grounds that such taxation would be contrary to the right to private property guaranteed by the constitution: the tax can then exceed the amount revenues.
The measure triggers a wave of “tax exiles”: by the hundreds, wealthy taxpayers leave the country each year. In 2000, UMP Senator Jean-François Poncet, alerted to the growing departure towards the United States and Great Britain of a French “entrepreneurial elite”. To stem the phenomenon, its parliamentary report, “The brain drain: myth or reality?” offers a reduction in administrative formalities and an adaptation of the wealth tax to the specific nature of innovative companies.
But, on the right as on the left, no touch to the ISF, emblematic totem. Until the election of François Hollande in 2012, the right will not stop adjusting the wealth tax, without significantly altering it, with the notorious exception of Nicolas Sarkozy in 2007. On the left, Martine Aubry even goes as far as ‘to make it “a symbol of the republican pact”.
In 2006, at the end of Jacques Chirac’s second five-year term, the government of Dominique de Villepin brought up to date the “capping” mechanism imagined in 1988 by Michel Rocard, renaming it “tax shield”. A taxpayer cannot have to pay more than 60% of his income in direct taxes.
But it is Nicolas Sarkozy who, in 2007, will really dare to attack the wealth tax, by imposing his famous “tax shield”, limiting the levy of tax within the framework of the “tax package”, carried by the law in favor of work, employment and purchasing power (TEPA). The ISF is reduced in the event of investment in SMEs, in order to develop small and medium-sized enterprises, and the threshold of the “tax shield” is limited to 50% of income, instead of 60% since 2006, in order to improve the tax attractiveness of France. Complementary measure, the law plans to condition the “golden parachutes” of the severance pay of company directors to the performance of the company.
In 2011, the former president announced that he wanted to remove the ISF, the return of which, 3.8 billion euros, has become “marginal” according to the Court of Auditors.
The Court of Auditors drives the point home by emphasizing that the French wealth tax is unique within the European Union. The state will not abolish wealth tax, but will abolish its capping mechanism, raising the tax threshold from 800,000 euros to 1.3 million euros. Labeled “president of the rich”, Nicolas Sarkozy will not be re-elected in 2012.
François Hollande, in his “60 commitments for France”, during the 2012 presidential campaign, promises to reverse the reductions of the ISF, with a tax rate of 75% for most annual income exceeding one million euros, and by reducing the inheritance allowance to 100,000 euros per child.
Having become president, the author of the famous “my enemy is finance” fulfilled his promise in 2013. The ISF scale again becomes progressive, the tax threshold being maintained at 1.3 million euros. The Dutch version of the wealthy tax boosts the tax expatriation of ISF taxpayers who have continued to increase since 2003.
In 2014, Belgium’s favorable taxation, with low capital taxation and the absence of wealth tax, attracted many French people, famous or not. Among the hundred largest fortunes of the Hexagon, one in five had settled in the neighboring “flat country”, including the Mulliez family, owner of the Auchan distribution group, several members of which are domiciled in Estaimpuis, a border town chosen by the actor Gérard Depardieu who, in December 2012, had hit the headlines by being domiciled in Belgium because of the new 75% tax which he said struck “success”.
Bruno Le Maire, Minister of Finance, October 2017
The ISF, revised and increased by François Hollande, did not allow the left to save the furniture in the 2017 presidential election. The French preferred to elect Emmanuel Macron, the candidate who proposed not to repeal “the tax on the rich “but to replace the existing system by the creation of a tax on real estate wealth (IFI), consisting in removing financial investments, savings and other securities from the taxable heritage of the ISF to keep than real estate values. With the objective of relaunching investment in SMEs, in order to fight against competition and develop employment. Even if it means rekindling a passionate debate passing for a new “president of the rich”.
This Wednesday, December 6, Emmanuel Macron rejected in the Council of Ministers the idea of returning to the reform of the wealth tax, closing the door that some ministers had seemed to open a little during the day.