Inheritance tax: Economic Analysis Council recommends radical reforms

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Free transfer rights are at the heart of many reflections. To promote equal opportunity that has been compromised over the last three decades by the development of inherited assets, the Economic Analysis Council proposes a lifetime tax flow, scales on direct and collateral lines, and finally on a tax basis. Enlarge. Eliminate tax loopholes.

The Council for Economic Analysis (CAE), a multidimensional body of recognized professional economists who advises the Prime Minister, has studied the French inheritance law system. At the end of December, he made a note that was not overlooked, especially as it supports the recent conclusions of the OECD. French inheritance and gifts are not fully taxed (Rethink inheritanceNote n ° 69 from CAE, December 2021). The Board proposes a radical reform of the inheritance tax.

Changes in inherited heritage

The main observations by the Economic Analysis Council are as follows: In France, inherited assets account for 60% of total assets today, compared to 35% in the early 1970s. This tendency is common to developed countries, but it is very noticeable. In France. Historically, France was a society of heirs at the end of the Belle Epoque, in terms of heritage.Then, under the influence of a series of economic, political and social shocks, the second half of 20When The century was a period of low inequality and high economic and social mobility. Inequality was essentially shaped by labor income inequality. “But for the past three decades, this society without heirs has disappeared rapidly.” Wealth accounted for 30% of national income in 1970, compared to 60% in 2020. “This highly concentrated return of inheritance fuels the dynamics of strengthening birth-based wealth inequality, emphasizing the council. In addition, wealth concentration has increased significantly over the last three decades. In France, 1% of the highest wealth in total wealth increased from 15% to 25% between 1985 and 2015.

In addition, Conceal observes a sharp increase in the flow of inheritance. The amount of accumulated wealth is increasing rapidly, but it has not been completely consumed throughout its life, and an important part is passed on to future generations. Finally, the type of transmission has also evolved. The average age of heirs today is about 50 (compared to the 30 at the beginning of the last century). The transfer of assets becomes even more widespread over time. The percentage of live donations went from 10% of remittances to almost half of these remittances. Despite the declining proportion of indirect line inheritance, which is less than 10% of the transferred capital, indirect line inheritance and donations are of transfer tax, given the size applied to the collateral line. Bring over 50% for free. ..

Inequality is growing

The inherited heritage plays a fundamental role in the composition of deep “dynasty” inequality. The council sought to assess the inequality of inheritance between individuals of the same generation. Within the cohort, 50% of individuals inherit less than € 70,000 in assets throughout their lives, most of which do not. On the other hand, less than 10% of individuals inherit wealth in excess of € 500,000 in their lifetime. And in this decile, 1% of the heirs of the generation receive an average of more than € 4.2 million, and finally 0.1% of the heirs receive about € 13 million. “Therefore, the average inheritance of the top 0.1% is about 180 times the median inheritance (…). The top 1% of cohort heirs simply live as pensioners,” workers. You can get a higher standard of living than the top 1% of.

Low tax inheritance

Therefore, the taxation system for free transmission is a problem. France has a higher level of taxation compared to neighboring countries, especially due to the higher level of taxation between indirect lines. In reality, the French system is “but undermined by tax exemptions or tax exemption mechanisms.” It is aimed at life insurance, property dismantling, and the transfer of “weakly financially legitimate” family businesses.

Unpopular tax

French people face a moral dilemma depending on whether they put themselves from the perspective of their children or from the perspective of their parents. The council believes that very few people want their children to be exposed to various opportunities and property as a result of their birth, but at the same time, the majority of parents want their children to be taxed. I’m not. This unpopularity is due to the lack of information and transparency, not only is the situation very poorly understood, but there is also a significant lack of information on both the function and impact of this tax. The French believe that inheritance tax has a single tax rate, is not progressive, and the tax exemption threshold is lower than the actual level. They overestimate the effective interest rates paid on real estate.

Improve data collection

The first recommendation of the Economic Analysis Council aims to overhaul the architecture for the collection and use of tax data on free transfer tax (DMTG). The council begins with the observation that the lack of an actual information system related to the taxation of inherited property “has very bad consequences for both tax policy management in informing the public about this politics and tax system.” .. Therefore, we propose to harmonize the collection of data on donations and inheritance and build an information system with DGFiP based on the notary and insurer’s declaration on the model of life insurance policy file (FICOVIA).

Lifelong tax flow

The second recommendation is to calculate the free transfer tax based on the total inheritance flow received by the individual throughout his or her life, rather than on time T or a fixed time period. Conseil observes that the inequality in total wealth inherited throughout life is greater than the observed inequality in the flow of inheritance transmission. “The wealthiest heirs receive multiple inheritances throughout their lives.” Current systems benefit from certain reductions several times, offering the potential to optimize the “timing” of the transmission flow.

The latest reforms have reduced deductions, reminders, and show very progressive rates, but penalize people with low transmissions, weak wealth, and unequal values. They create “a very powerful and effective inventive step illusion of the system”.

In addition, the Board recommends adapting the scale to ensure that the kinship between the donor and the heir is neutral. Direct and secured line transmissions are taxed on the same scale. It is a matter of eliminating “strong distortions (…) whose legitimacy can be questioned by the evolution of family structure”.

Limit exemptions

The third recommendation is to review the inheritance tax base and eliminate or reform the major “niche”. According to the council, French tax exemptions and tax exemptions are “very generous compared to tax standards and focus on assets owned by the wealthiest individuals.” “The percentage of heirs who will receive a total remittance of around € 13 million in their lifetime is far from the 45% marginal tax rate shown on the scale of over € 1.8 million, only 10% for all of this inherited heritage. Just pay the inheritance tax. Send directly. ” Inheritance tax rates are very strong in the upper middle class, fueling the feeling that free transfer taxes tax savings on working life and ruin their social acceptance.

Regarding life insurance, the Board believes that discriminatory treatment under transfer obligations “has no strong financial justification.” He recommends integrating it into the general scale of transfer tariffs for free, without eliminating the retroactiveness of such reforms “as soon as the reason for the general interests becomes clear”.

Regarding the dismantling of property, the council believes that it is not based on any strong economic justification, except to benefit from the exemption within the donation framework. Therefore, it seems “logical” to him to remove the tax benefits associated with the dismantling of property by taxing the death of a donor on a combination of usufruct and bare ownership.

Finally, the board makes equally strict decisions about the agreement. DutreilJustifies the 75% tax exemption, showing that the taxation of family-owned transfers has very limited or even zero negative impact on investment, employment, governance, and business survival. increase. We also do not recognize the significant financial benefits of the incentives to bring family heirs into corporate governance. at leastIt is recommended to strengthen the tax system for the scheme DutreilHowever, I believe that the most appropriate solution is “a very strong reduction or even the elimination of tax exemptions.” Dutreil For the benefit of the mechanism to facilitate the payment of rights. Finally, the Board also recommends terminating the rule of completely revoking capital gains upon death.

Redistribution: Capital paid to each adult

In the fourth recommendation, the Board will elicit better revenue outcomes for this reformed inheritance tax and provide better redistribution conditions. It proposes to guarantee capital to all who are paid by a majority, based on citizenship, in order to limit the most extreme inequality of opportunity.