Infotech No, the abolition of the ISF did not stimulate investment

No, the abolition of the ISF did not stimulate investment




We must start by giving the government a satisfaction: it had promised an evaluation of its reform of the taxation of capital at the start of the five-year term (abolition of the ISF, transformed into IFI – tax on real estate wealth -, and taxation of dividends to 30%, by a single flat-rate levy, rather than the income tax scale). The aim was to show that the reduction of this tax – especially favorable to wealthy households – would benefit the entire economy, via investment.

Promise kept: Thursday, October 14, the France Strategy Institute, which employed several university researchers who used innovative methods, submitted its report. And the Ministry of Economy and Finance has played the game of evaluation by facilitating access to data. We are therefore dealing with an innovative evaluation of university quality.

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So let’s come to the results… Yes, the reform has a positive effect: there are far fewer French people leaving abroad and more returning. It put an end to tax exile. Yes, she put France back in “OECD standard” in terms of wealth taxation: France strategy shows that the after-tax return on bonds, equities and investment funds has caught up with the average of what we see in other industrialized countries. This is not the case for rental properties (still subject to wealth tax via the IFI). Yes, there is a positive effect on the productive fabric (with more hires), but this is mainly explained by the reduction in corporate tax.

However, the rest is less positive. The objective of the ISF reform was to stimulate investment in France and to facilitate the rejuvenation and renewal of managers of medium-sized companies, these large SMEs which have made Germany prosperous. Many managers, we were told, refused to let go of the stick so that their company remains a professional asset, exempt from wealth tax, rather than a patrimonial asset, subject to this wealth tax.

On these two points, France strategy’s assessment is fairly formal: there was no visible effect on investment or on managerial turnover. No rejuvenation of the average age of bosses, which would promote the digital transition, no visible change.

No effect either “Tribute” : We kept telling us that companies should pay dividends, instead of investing, to allow their shareholders to pay the ISF bill. This deprived them of a precious resource in equity. The abolition of the ISF did not cause any change in the matter.

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It is even the opposite: the introduction of the single flat-rate deduction on dividends – a fixed tax of 30% – freed up the remuneration of shareholders. Especially in companies controlled by natural persons. The shareholders of these companies pay themselves much more dividends – around 9 billion euros per year since 2018 – which of course benefit the better-off:

And France Strategy shows it clearly: 97% of dividends are received by 1.7% of tax households, 62% by 0.1%, 31% by 0.01%.

Longer-term effects?

If the reform of the ISF did not significantly stimulate investment, it is not advisable to go back, at least certainly not with the old ISF, explains France Stratégie which shows all the limits of this tax. The ultra-rich, the hundred thousandth of the wealthiest households, escaped it thanks to the mechanism of the tax cap (which constitutionally cannot exceed 75% of income). What readily recognizes the Ministry of Economy and Finance. The former ISF weighed heavily on owners of medium-sized businesses, large SMEs, and therefore medium fortunes. However, it is not these that want to target the wealth tax proposals that we see flourishing in the United States – because of the explosion of inequalities due to the soaring stock market fortunes – or even Germany in the program of the SPD and the Greens. It is rather a tax on very large fortunes, of several tens or even hundreds of millions of euros.

Bruno Le Maire, delighted with macronia

Unsurprisingly, Bercy, while welcoming the work of France Stratégie, has some reservations. First of all, the weather. He thinks the effects can hardly be seen until two years after its implementation. Bruno Le Maire’s entourage believes that we need to have more perspective. They also note that there are other criteria than those retained by France Strategy which show the positive effect of the reform of the taxation of capital and of the approach of Emmanuel Macron: the investments in shares of the French have passed. from 18% in 2016 to 23% and fundraising – which allows companies, especially innovative companies to finance themselves on the markets – increased from 15 billion euros in 2016 to 21 billion euros. Dividends from households – including the better-off – will flow to these promising companies if given time.

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By establishing that the end of the ISF or the reduction in taxes on dividends did not boost investment, as promised, the work of France Strategy shows that we can ask the question of taxation of the wealth of the richest. And imagine a better targeted wealth tax, more focused on millionaires in tens of millions of euros, centimillionaires or billionaires, without threatening the economic fabric. Their fortunes have exploded since the Covid. We could even ask ourselves the question at European level. Chick!



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