French Senate Approves Tax on High Earners, Expands Investment Taxes
The French Senate on Tuesday gave its stamp of approval to a new “differential contribution” on high earners, along with a series of amendments to increase taxes on capital like the “exit tax” and the “flat tax.”
These amendments represent a significant win for the left-wing opposition in the upper house, despite initial victories for the government’s proposed budget.
Finance Minister Laurent Saint-Martin had initial success when the Senate largely approved the government’s proposed tax on high earners, projected to bring in €2 billion annually until 2027.
While the government initially fought for a permanent implementation, the Senate aligned with the National Assembly, limiting the scope of the tax to three years, until income from 2026 is taxed in 2027.
Saint-Martin indicated openness to extending the duration of the levy, potentially as long as public deficit levels remain above 4%. He reiterated the government’s stance that the “tax justice measure,” which imposes a minimum rate of 20% on annual incomes exceeding €250,000 for individuals and €500,000 for couples without children, would remain untampered with.
Attempts by left-wing senators to broaden the tax to include the highest patrimonies were unsuccessful.
“We know full well that these inheritances largely escape taxation,” lamented socialist Florence Blatrix-Contat, underlining the expansion of wealth disparity.
Challenges to Key Measures
However, the Finance Minister then faced a series of setbacks during the session. Senators approved amendments against the government’s position on several key taxes, effectively tweaking several of President Emmanuel Macron’s flagship reforms.
Exit Tax
First, the Senate voted to double the duration of the “exit tax,” a mechanism designed to prevent tax exile by taxing capital gains upon emigration. The current Macron-era regulation, which reduced the duration from 15 years to 2 years under Sarkozy’s administration, sparked opposition regarding its impact on entrepreneurs. The amendment proposes doubling the duration to 4 years, particularly for companies having benefited from at least €100,000 in public aid.
“The time has come to correct a French tax avoidance system, particularly for the largest companies,” argued centrist senator Bernard Delcros, whose faction played a pivotal role in passing the measure by 173 votes to 167.
Delcros, who collaborated with left-wing senators to secure the amendment, underscored a growing unease among parliamentarians regarding firms maneuvering to minimize taxes.
Flat Tax Debate
The Senate also voted to increase the rate of the “flat tax,” implemented in 2018 to cap capital income taxation. The amendment raised the rate from 30% to 33%, a reformation estimated to generate an extra €800 million in revenue, according to insights from the radical RDSE group, which supported the amendment. Pushed forward by a coalition comprised of leftist and centrist senators, the motion passed by a margin of 174 to 167, highlighting the growing bipartisan critique of specific tax breaks.
Confusion Over IFI
The tax on unproductive wealth (IFI), which replaced the wealth solidarity tax seven years ago, saw ambitious reform fall short. While the IFI will not be replaced by the ISF, a broad consensus emerged across the Senate to rename the tax and expand its scope, though the correlating constitution modification remains pending.
The IFI’s new moniker, the “tax on unproductive wealth,” reflects concerns about wealth concentration. Notably, the scope of the tax will be significantly expanded to encompass a broader array of assets including building land, luxury vehicles, yachts and private jets, as well as newly emerging assets such as cryptocurrencies, savings accounts and bank deposits.
The debate surrounding the IFI underlines a continual Liz toggle toward a more progressive taxation system, even within the French Senate, as lawmakers grapple with the complexities of addressing economic disparity.
What are the arguments for and against expanding inheritance taxes to include the wealthiest inheritances in France?
## Interview Snippet: French Senate Tax Showdown
**Host:** Welcome back to the program. Joining us today to discuss the recent moves by the French Senate on taxation is [Guest Name], a leading expert on French economics.
[Guest Name], the Senate just approved a new tax on high earners. What does this mean for the French government’s budget?
**Guest:** It’s a significant development, but the impact isn’t entirely clear yet. This “differential contribution” is projected to bring in €2 billion annually until 2027. However, there’s a catch. The Senate limited the duration to three years, in contrast to the government’s initial push for a permanent solution.
**Host:** So, it’s a short-term win for the government, but not necessarily a long-term solution?
**Guest:** Exactly. The Finance Minister has indicated a willingness to potentially extend it, but only under certain circumstances – if public deficit levels remain above 4%.
**Host:** Interesting. The Snowflake article mentions that left-wing senators tried to expand the tax to include the wealthiest inheritances, but they weren’t successful. What’s behind this push?
**Guest:** The argument is that these inheritance taxes are crucial to address the growing wealth disparity in France. As socialist senator Florence Blatrix-Contat pointed out, large inheritances often escape taxation, which exacerbates this problem.
**Host:** Fascinating. The article also mentions changes to the “exit tax” and “flat tax.” Can you elaborate on those?
**Guest:** Absolutely. The Senate actually voted to double the duration of the “exit tax,” a measure designed to prevent tax evasion by individuals leaving the country. This move directly challenges one of President Macron’s flagship reforms, representing a significant victory for the left-wing opposition.
**Host:** So, are we seeing a shift in the political landscape regarding tax policy in France?
**Guest:** It certainly appears that way. The Senate’s amendments demonstrate a growing willingness from the left to challenge Macron’s economic policies. It will be fascinating to see how the government responds and whether these changes ultimately stick.
