A late hour, empty benches … It is in a sparse hemicycle that the bill establishing a 2 % floor tax on the heritage of ultra-rich was adopted Thursday, February 20 by the deputies. This text, carried by the environmental group on the occasion of its parliamentary niche and inspired by the work of the economist Gabriel Zucman, will now have to be examined by the Senate. The latter being dominated by the right, there is little chance that this tax comes into force in the coming months.
The fact remains that the subject will inevitably return to the table, while the State is continuously looking for new returns to reduce its abysmal deficit. For economist Antoine Levy, professor at the University of Berkeley, this contribution would have heavy consequences on the French economy. As for potential recipes, they would be overestimated.
L’Express: Is the tax adopted yesterday at the Assembly relevant from an economic point of view?
Antoine Levy: There are two aspects to analyze: potential tax revenues and the impact on economic activity. First of all, I think the expected recipes are overestimated. The value of high heritage is often evaluated from public rankings, such as those of Challengeswhich overestimate the real amounts. Many companies concerned are not liquid, which means that they would undergo a liquidity discount if they were sold to pay the tax. In other words, an unlisted start-up or a family business is much less in the market if you have to sell part of it than in theory.
“” “If a company is subject to high taxation before even generating profits, its development can be slowed down»
Then, the hypothesis of a tax revenue of 18 to 20 billion euros seems exaggerated to me, because such a tax would already be added to other levies, including corporate tax. Let us take the example of Bernard Arnault: if his business generates profits evaluated at around 4 to 6 % of his fortune, corporate tax already takes 1 to 1.5 % of his wealth. If an additional 2 % tax was applied, the corporate tax should undoubtedly be subtracted to comply with the constitutional requirements of maximum tax. This would further reduce the expected tax revenue.
What would be the consequences on the economy and investment?
The main fear is the discouragement of economic activity. We often talk about fiscal emigration, which is a reality, but it is probably not massive enough to completely cancel the tax revenue of this tax. On the other hand, there are other more insidious and more difficult effects to measure, such as discouragement when creating businesses. If a company is subject to high taxation before even generating profits, its development can be slowed down.
For example, if the owners of Mistral, a French flagship of artificial intelligence, are taxed on the basis of an estimated valuation while the company generates only losses for the moment, there would be a problem of liquidity . They should then sell shares quickly, relocate the activity or simply not create the company in France. This type of effect can have a deep impact, although difficult to measure.
Could it also promote the acquisition of French companies by foreign investors?
Absolutely. If an entrepreneur has shares of a company worth 100 billion euros and must pay 2 billion taxes, he will have to sell shares. But to pay these 2 billion, he will have to sell for 3 billion in order to cover both the capital gain and the heritage tax, creating a snowball effect which forces him to give up a substantial part of its capital.
As a result, these assets will be purchased by those with deep pockets, that is to say mainly investment funds, banks and insurers, whether French or foreign. The State would thus impose a change of governance within large French companies, with consequences on their strategy.
Can this tax really help reduce the public deficit?
It is essential to have the orders of magnitude in mind. The deficit to be filled today amounts to around 180 billion. Even if you found 20 billion among billionaires, this amount would only cover a ninth of the problem. And this in the best years, that is to say when, at the beginning, you can take on the historical basis of capital. But over time, this basis is reduced under the effect of the tax, which would cause a gradual decrease in revenues, even in the maximum initial hypothesis of 20 billion, which, in reality, is already unrealistic.
“” “Setting up such a tax isolated is not necessarily feasible»
In addition, it is necessary to understand where this figure of 20 billion comes from. It is calculated on the entire heritage of large fortunes in France, depending on the rankings of Challenges. However, if we look in detail, out of the 1,000 billion heritage held by these 1,800 to 2,000 people, around 700 billion belong to the first ten fortunes. Thus, out of the 20 billion theoretical, 14 to 15 billion would be paid by only ten people or families. A tax based on such a narrow tax base is obviously very fragile. Whatever the extent of the tax exile, it would suffice that one of these ten people leave for the theoretical yield of the tax falls in half.
Is this a problem if France acts alone by establishing this tax? Gabriel Zucman defended a global approach, while here, we are talking about a national initiative.
There are two aspects to consider in matters of tax coordination. The first is whether to act alone encourages tax exile more than if the measure was applied simultaneously by several countries. The answer is yes, mechanically: if France is the only one to establish a tax on heritage, the other countries become relatively more attractive. That said, these tax exile phenomena exist, but they are not enough to completely cancel the effect of these taxes. They are not even the determining factor in reducing their tax base.
On the other hand, if France acts alone, it risks appearing out of step, not only on the tax level, but also in matters of economic policy compared to its partners. The question of equality at European level arises: to set up such a tax isolated is not necessarily feasible. Indeed, taxes on the value of businesses and professional goods, according to case law, can be perceived as brakes on capital mobility. This would amount to establishing a particularly restrictive form of exit tax to limit tax exile. However, it is not at all certain that it is compatible with European treaties on the free movement of capital. By acting alone, France would therefore also be exposed to legal and regulatory risks vis-à-vis its international commitments.
And what is the message sent when you see that it is much easier to increase taxes than to reduce public spending?
This bill emanates from environmental deputies and is supported by the entire NFP – the PS, LFI, the Communists and the Ecologists. These parties very explicitly defend the idea that most of the budgetary adjustment in France must go through taxation rather than a reduction in expenses. It is a political choice on which I do not comment. But the figures of public spending in France, compared to other countries or their historic level, show that it does not appear reasonable to bet everything on taxation without also reducing expenses.
“” “Most of the public deficit is linked to very generous pensions»
France already displays the highest labor and capital tax rates in Europe, and among the highest in the OECD. It also has the highest public spending rate in Europe and one of the highest in the OECD. In this context, it is difficult to think that the right answer is to further increase taxes without affecting expenses.
Why is it so difficult to reduce public spending?
This is an eminently political question because it affects many ministries and sectors. But, above all, the difficulty comes from the fact that many citizens do not have a realistic vision of the distribution of public spending. Today, most of the public spending – in particular those that increase – concerns social protection and local investment expenditure. Concretely, this mainly means pensions on the one hand and transfers to local authorities on the other hand.
Many imagine that reducing expenses amounts to removing excess of civil servants within the State. In reality, this is not the case. Most of the public deficit is linked to very generous pensions. It is politically difficult to say, and even more difficult to reform. However, the reality is that any significant reduction in public spending necessarily involves touching at the heart of the problem: pensions, whether in the private or public sector. Without this, it is almost impossible to significantly adjust the budget deficit by the sole reduction of other expenditure stations.
Are there more effective alternatives than this 2 % tax to make great fortunes contribute without perverse effects on the economy?
Make more contributance the big fortunes? Why not. In any case, a global budget adjustment is necessary. Could the taxation of the highest income help make this effort more acceptable? No doubt. Moreover, it is already starting this year with an increase in flat tax on high income, which goes from 30 % to 37 %.
However, to focus on the contribution of the richest is to ignore the extent of the budgetary challenge. The deficit represents 6 % of GDP, or 180 billion euros. If we add the additional 3 % of GDP announced by Emmanuel Macron for the defense, the total effort would be brought to 9 % of GDP, or 270 billion euros.
The biggest fortunes, as important as they are, are not enough to finance such an adjustment in a sustainable manner. Even by fully confiscating their assets, estimated at 1,000 billion euros, this would only cover less than a year of public spending. And after? The only viable solution involves a significant reduction in public spending, in particular those linked to social protection, transfers to local authorities and, to a certain extent, to state expenditure, which largely include public pensions. In summary, believing that taxing big fortunes could be more able to solve the structural problem of public finances is to be mistaken.
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