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The wealth tax: a tax on the 'rich' that cripples the poor

October 28, 2014


The Alliers, pensioners on fixed incomes, don’t have any jewellery, or any money. “Our wheelbarrows, they don’t serve to carry wads of cash,” says Mr Allier. These days, they don’t have much land, either. Over the past decade, they’ve sold nearly all of it to pay the wealth taxes that regularly exceeded their entire income. They only have one field left, though if prices keep rising, they may have to get rid of that, too, to hold on to their house.

Valérie Constancin, president of the Association for the Defence of the Inhabitants of the Île de Ré, says that many of the hardest cases on the island arose when people suddenly came to the authorities’ attention – perhaps because a family member had died, or they needed permission for some change to their land. Then they were hit with gigantic bills for years of back taxes, often with penalties for non‑disclosure of “wealth” that they never realised they had.

“They don’t know they have to pay so they don’t do the things they need to minimise it,” she said. “One elderly childminder was suddenly presented with a bill for €55,000 (£45,000) when her husband died. Those were her life savings. She had to pay and she is wondering how she will pay next year now. Our children will have to sell up and leave. We’ll end up as a bird sanctuary.”

In French, ISF means “solidarity tax on fortunes”. But there is very little solidarity, and the number of actual fortunes caught by it is small. As you would expect, anyone with real money finds ways round the tax. Its burden falls instead on those of middling income who cannot afford to pay clever advisers.

The wealth tax, first introduced by the Mitterrand government in 1981 and in its present form in 1988, tends to yo-yo, with Right-wing governments reducing it and Left-wing governments putting it up. In 2012, President François Hollande’s socialists sharply increased the rates and bands, dragging in more people. In 2001, only 281,000 paid it. Eleven years later, that had more than doubled, to 600,000.

In 2012, Gilles Carrez, chairman of the National Assembly finance committee, estimated that “several hundred, perhaps as many as a thousand” of those people – peasants on the Île de Ré and a few other fashionable holiday spots, pensioners with expensive flats in central Paris – would be forced to pay more than 100 per cent of their income in taxes. A few would have to pay up to 400 per cent, he said. (A “plafonnement”, or cap, has since been introduced, theoretically limiting total taxes to three quarters of income.)

But even for the more typical ISF payer – a middle manager, say, with a five-bedroom house in one of the capital’s better suburbs – the tax is a curse.

“I have already paid taxes on the income I used to buy my place, and again on the savings I built up towards it,” says Pierre Perrin, from Bougival, a bourgeois part of Paris. “Each year we have to declare everything we have to the state, including my wife’s jewellery, our cars and the contents of our wine cellar. It is a major invasion of privacy, as much as anything.”

French newspapers and tabloid websites lap up the annual league tables, published by the tax authorities, of how many people in each individual neighbourhood are liable for ISF and what their assets are.

The wheezes used to avoid paying the tax are, of course, manifold. If you’ve ever wondered why French people have so many antiques and works of art in their homes, the reason is not just Gallic good taste. Assets over 100 years old, or created by hand, do not count towards the ISF. Other taxpayers make temporary “gifts” of their assets to relatives, without actually having to give them away for ever – though this procedure involves entering another potential fiscal whirlpool, France’s “gift tax”.

Then there are the more advanced forms of avoidance – like those practised by, well, one François Hollande. He may have declared his support for wealth taxes because, in his words, he “hates the rich”. But the then future president and his then partner, Ségolène Royal, also a leading French politician, were monstered by the press in 2007 after it emerged that they had dramatically undervalued their own personal property empire in order to minimise their ISF.

The couple valued what they described as a “modest villa” at Mougins, on the Riviera near Cannes – complete with swimming pool, garden and nice view of the Med – at just €270,000 (then £192,000), a figure greeted with a mixture of disbelief and laughter by locals. A panel of estate agents convened by the investigative newspaper, Le Canard enchaîné, said it was worth three times as much.

Their flat in the expensive Paris suburb of Boulogne-Billancourt was declared to the tax authorities at £535,000, when it was actually worth £850,000. Then there was a third property they used in northern France. Mr Hollande and Ms Royal escaped ISF on this altogether by transferring it to a special property company – owned by themselves and Mr Hollande’s parents. In total, it was estimated, French politics’ premier power couple should have paid £4,300 in ISF that year. They actually paid £616.

Ms Royal’s defence, incidentally, was that the Mougins villa was a “family house, bought more than 20 years ago”. That is, of course, the precise frustration expressed by thousands of other middle-class people across France – but then, they do not support the wealth tax.

After Mr Hollande acceded to the presidency, one of his ministers was found to have taken an even more direct approach to avoiding his dues. In April last year, after flatly denying it for months, Jérôme Cahuzac admitted that he had, for two decades, used a secret bank account at UBS in Geneva to avoid paying French tax. His role in Mr Hollande’s government? He was the minister responsible for tackling tax avoidance.

Often called the “Incitement de Sortir de la France”, or incentive to leave the country, the ISF may well have played its part in France’s current economic stagnation. Tens of thousands of French entrepreneurs, driven out to London, the Far East or the US by the policy, are creating wealth for other countries, not their own.

The deterrent to foreign investors is also substantial; some campaigners estimate that it has cost France 0.3 per cent of annual growth. When your total growth this year is forecast to be only 0.4 per cent (Britain’s is predicted to be 3.2 per cent), that may not be something the French economy can afford.

Yet just as important, the ISF is morally as well as economically counterproductive. It makes victims of the poor, and hypocrites of the rich. Mr Miliband should take note.

http://telegraph.feedsportal.com/c/32726/f/568507/s/3fd5734b/sc/7/l/0L0Stelegraph0O0Cnews0Cworldnews0Ceurope0Cfrance0C1118760A20CThe0Ewealth0Etax0Ea0Etax0Eon0Ethe0Erich0Ethat0Ecripples0Ethe0Epoor0Bhtml/story01.htm

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