Flat tax and IFI have deepened wealth inequalities in France

“Macron, president of the rich”? The slogan of the anti-Macron is confirmed a little more after the publication, on September 9, 2020, of the study by two researchers from INSEE and DREES. While both reforms cost the state less than expected, in terms of lost revenue streams, they did indeed make the rich richer.

The 10% capture the vast majority of the benefits of reforms

The study conducted by Félix Pasquier, a researcher from Drees, and Michaël Sicsic, from INSEE, simply reveals that the richest 10% of households have captured the vast majority of the benefits, in terms of income and purchasing power, of the two reforms such as the transformation of the Fortune Tax (ISF) into the Real Estate Wealth Tax (IFI) and the introduction of the Flat tax.

Of the total increase in living standards enabled by these two reforms, the richest 10% in France captured 79% of the whole, leaving only 21% of the earnings to be distributed among the remaining 90% of households. This is not surprising since both reforms targeted large fortunes and paid dividends.

The government is losing less than expected

The good news of this study is for the state coffers: the reforms cost less. The government expected to lose 5.4 billion euros in annual tax revenues as a result of the reforms, it will have lost only 2.9 billion per year.

The reduced loss is linked, among other things, to the increase in deductions linked to the Flat Tax, an increase itself linked to the increase in dividends paid to households: 60% more between 2017 and 2018 according to the authors of the study. But, here too, it shows the effect of the Flat Tax: it is the wealthiest households who hold the most shares in companies, and who therefore captured the majority of this increase in dividends.

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