Personal income tax, which is largely progressive, remains the main vehicle for taking family structure into account in taxation, but this situation could be consolidated.
Personal income tax (IR) is based on a scale of seven brackets (0% to 49%). 18 million out of 40 tax households have paid it in 2023. In contrast, social levies, among which is the general social security levy (CSG), are paid by all those receiving income from work or capital. The CPO presents an assessment of the joint progressivity of these taxes: below 5% for the top tenth of the population, the average tax rate for the wealthiest 1% reaches 30%.
In addition to this principle of “vertical” equality, for IR, differences in the circumstances of tax households are considered through the marital and family quotients. The CPO notes that high-income but heterogeneous couples benefit from the full effect of the marital quotient, while middle-class couples are disadvantaged in relation to single people by the application of a complex French tax haircut mechanism called “décote”. It proposes a rebalancing in favour of middle-class couples. The CPO also calls for family expenses to be better taken into account when calculating tax, by raising the ceiling on the family quotient and refocusing the family quotient on expenses actually incurred.
The consistency of tax treatment of different income categories, which is an essential element in the assessment of equality before the law, can also be strengthened.
Different categories of income are subject to different tax treatments, with the aim of considering the different situations of their beneficiaries. However, certain preferential tax treatments do not appear to be fully justified. In particular, while salaries are heavily taxed, France is witnessing the development of tax-exempt additional remunerations, which undermines equality before taxation. The tax advantages enjoyed by pensions should not benefit the wealthiest pensioners. Income from real estate assets continues to be marked by distortions between furnished and unfurnished rentals, which are analysed in greater detail in a CPO note published in October 2024. Taxation of income from movable assets has been lightened by the creation of the single withholding tax (PFU) and the CPO recommends further assessment of this PFU. However, independently of this measure, it allows for a number of tax optimization schemes, which the CPO recommends that it should be better supervised.
These different types of income are not fully considered in the reference taxable income (RFR), which is used as a reference to qualify for certain social benefits. The CPO considers that its definition should be adjusted to better reflect taxpayers' ability to pay.
Tax credits and reductions, which are concentrated on the wealthiest, could be rationalized.
After examining all tax credits and reductions in excess of €100 million, the CPO recommends adjusting or even eliminating some of them. The rate of the tax credit for employing a homecare worker could be reduced for services not related to childcare or dependency. The tax reduction for investments in overseas France and the tax reduction for tuition fees are in addition to other public policy instruments that pursue the same objectives with greater efficiency: the CPO recommends their abolition.
Lastly, the CPO notes that the overall ceiling on tax reductions and credits available to a tax household is currently inconsistent, and proposes that all tax breaks and credits, with the exception of the tax reduction on donations, be included under a single ceiling adjusted according to the composition of the tax household and the existence of any dependent adults or children.
Finally, while the “tax compact” embodied by the income tax system continues to be challenged by fraud and tax evasion, new tools can be developed to capitalize on the progress made in the fight against fraud in recent years.
The CPO notes that while progress has been made, more needs to be done to struggle against international tax avoidance in the area of personal income taxation. The development of exchanges of information between States on the beneficial owners of companies is necessary to counter international avoidance strategies for personal income taxation. Competition between countries to attract the tax residence of wealthy taxpayers calls for new work at OECD level to combat harmful tax practices.
Internally, the CPO notes that France has yet to produce an assessment of personal income tax fraud or tax gap. On the other hand, it describes a rapidly changing control landscape, which calls for better coordination between tax and social security authorities, on the one hand, and between tax and criminal courts, on the other.
The measures proposed by the CPO are designed to reinforce the equality of citizens in terms of personal income taxation. In budgetary terms, their impact on French public finances can range from a stabilization of revenues to an increase of €1.7 billion, depending on the parameters adopted for certain measures. This would strengthen the “tax compact” that is a condition of our social contract and our “living together”, without harming public finances.
