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With the Removal of Wealth Tax, Rich People Invest 70% Less in Small and Medium Businesses

The main argument of the government to justify the partial abolition of the ISF is contradicted by the figures: the annual report on the application of fiscal measures, published in July, shows that the rich did not invest the money saved on the tax in the real economy.

It did not work out as planned. As was noted by “Les Echos” on Monday, August 12th, the general rapporteur of the Finance Committee of the National Assembly, the deputy (La République En Marche!) Joel Giraud, submitted in mid-July his annual report on the application of fiscal measures. This document contains the first returns on the property tax, an extra-light version of the ISF. The main lesson of this assessment: one of the major arguments of the government to justify its reform, according to which the restriction of the ISF only to real estate values would allow the rich to invest in companies, no longer holds.

Whether the government was naive or the wealthy did not play the game, the numbers are there: for 2017, the ISF relief to which the most moneyed were entitled when they chose to invest in a small or medium business amounted to €550 million. For 2018, the amount of this same relief is only €160 million. In other words, instead of stimulating investment in small or medium businesses, the move from the ISF to the IFI has, on the contrary, reduced it by 70.9%.

Where did this money go? Last April, the annual Ipsos-Foundation Apprenticeship of Auteuil survey showed that the funds saved were mainly allocated to savings and consumption. 42% of the 300 taxpayers surveyed declared that they had spent this money on consumer spending, 41% on their savings and only 29% on investing in a company. As expected, donations to associations under the IFI are also in free fall: their total amount decreased by 30% to €137 million. It remains to be seen whether money that has not been invested in donations and SMEs has been invested in large companies.

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It seems in any case that the initial deal was not respected, which could put the government in an unfortunate position. Article 31 of the 2018 Finance Act, which sets up the IFI, stipulates in effect that “the replacement of the solidarity tax on wealth by the property tax (…) is the subject of a monitoring and evaluation mission to measure its economic and social impacts “, adding that “special attention is paid to the effects of the measure in terms of investment in enterprises and distribution of wealth”.

The law sets a deadline of two years before the establishment of this evaluation mission, on December 30th 2019. Last March, in front of an audience of intellectuals gathered at the Elysee, the President of the Republic, Emmanuel Macron recognised that it might be necessary to “repackage more the part of the suppressed ISF” if “the objective of the return or the maintenance of the productive capital” was not reached.

While awaiting the goodwill of hypothetical investors, the shortfall for the State is significant: “The gross yield of the IFI, before tax reduction and ceiling, is €1,523 million. IFI reported €1,291 million,” it is stated in the report of the National Assembly. In 2017, according to the previous report of the National Assembly, the net income of the ISF was €4.23 billion. Not surprising, since the number of taxpayers rose from 358,000 in 2017 to 132,722 in 2018, while taxable assets increased from 1,028 billion two years ago to 300 billion last year. The cap on the wealth tax, which cost the public finances €1.3 billion in 2017, amounts to only €91 million. We console ourselves as we can.

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