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France to eliminate tax cap, reform wealth tax

France is unfortunately known for its high taxes. One of the recent fiscal measures, le bouclier fiscal or the tax cap (a.k.a. tax shield) limited all direct income taxes to 50% no matter the income bracket. I wrote about this recently on Bonjour Paris. Those who defended it said it lightened the load of taxes, but those opposed to it reckoned it protected the wealthy while not contributing to reducing the deficit and debt.

Recent debate lead up to today’s decision, announced today by Prime Minister François Fillon, to end the policy. (However, some sort of tax cap will remain in place, at an unspecified percentage, for the less well-off, which make up 52% of the beneficiaries). You can see the French article from Le Point at the link above, and the video from BFM TV below.

Below the video, excerpts from this Wall Street Journal article. Next on the agenda: reforming or abolishing the wealth tax (see more in WSJ and Bonjour Paris articles as well as a detailed report by Le Figaro), which could help as many as 300,000 households pay less tax.

What are your thoughts on these developments?

EUROPE BUSINESS NEWSMARCH 3, 2011, 7:38 A.M. ET
French Prime Minister Says Tax Shield to be Abolished

By WILLIAM HOROBIN

PARIS—French Prime Minister François Fillon Thursday confirmed the government intends to abolish a tax shield that has become a controversial hallmark of Nicolas Sarkozy’s presidency.

Mr. Sarkozy decreased the threshold of the tax shield shortly after coming to power in 2007 so that no taxpayer pays more than half their income in taxes. But his ratings have hit record lows and the tax shield has become a thorn in his side as many voters see it as a measure benefiting the wealthy few.

“We have to face up to reality: the tax shield has been misunderstood, and the crisis has probably made our citizens more sensitive to some of its effects,” Mr. Fillon told a conference, organized to discuss the reform of property and capital taxes that Mr. Sarkozy has promised for the first half of 2011.

The tax shield was designed in part to limit the impact of France’s wealth tax, which Mr. Sarkozy also intends to reform before the presidential elections in May 2012.

The government says it will either do away with the wealth tax completely or significantly modify it. Mr. Fillon said Thursday said the reform will free 300,000 households from the wealth tax.

Yet the government is insisting the reform must have a neutral impact on public finances at a time when France is fighting to rein in deficits. If the wealth tax and the tax shield are abolished, the government will need around €3.2 billion ($4.44 billion) to make up the shortfall.

“We won’t finance this reform with debt. Balancing the budget will be strictly respected,” Mr. Fillon said.

He also ruled out a variety of options that have been suggested in recent months. The government will not tax gains on the sale of main residences, will not reverse its reduction of inheritance tax, and will not introduce an additional tax bracket, Mr. Fillon said.

Mr. Fillon also said the reform of capital and property tax is one of the reforms necessary for greater tax convergence in the euro zone.

European leaders are negotiating a competitiveness pact for members of the euro zone. Some countries have balked at Franco-German proposals that they fear would compromise their sovereignty in sensitive areas like pensions and salaries.

Mr. Fillon said France and Germany should aim to harmonize corporate taxes, starting with the base of these taxes before looking at the rates.

  1. March 3rd, 2011 at 20:26 | #1

    Only wishing that I will make so much money n France that I will obliged to pay all these taxes 🙂 !

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