It is one of the great economic works of the Macron five-year term, one of the most contested too, which has earned it the nickname of “President of the rich” : in the fall of 2017, the capital tax reform introduced a single flat-rate levy (PFU, or “flat tax”) of 30% on the income concerned and the transformation of the solidarity tax on wealth (ISF) into a simple real estate wealth tax (IFI). What were the concrete effects of these decisions? In his third report on the subject, presented this Thursday, France Stratégie, an assessment and forecasting body attached to Matignon but whose independence and seriousness are recognized, provides several answers and raises questions: the reform has encouraged the payment of dividends by companies to their shareholder-owners, with a very uncertain or even zero impact on the real economy.
This tax relief program had the merit of bringing wealthy households back home, delighted to find a level of taxation that suited them. This is a priori good news, because the assets and financial capacities that they move with them are likely to increase economic activity. “Since the transition from the ISF to the IFI, there has been a decrease in the number of expatriates and an increase in the number of tax expatriates of wealthy French households,” writes France Stratégie, which counts 340 returns of taxable households to the IFI in 2019 for 280 departures. As in 2018, the balance is positive. It was negative when the ISF still prevailed (470 returns in 2016, for 1,020 departures). This is the Macron effect: he is at least the beloved president of the rich. Be careful, however, not to get carried away. These movements are small overall, with 130,000 taxpayers subject to the IFI in 2019.
23 billion euros in dividends
The most notable effect of this reform concerns the payment of dividends, which increased considerably from 2018 and has remained at a high level since. By freezing a 30% tax regardless of the level of income concerned, the PFU has unleashed a passion for dividends in companies. This is particularly true in unlisted companies, owned by individual owners: why would a boss-shareholder choose to be paid in salaries taxable up to 45% when he can spoil himself in taxable dividends at 30%? In 2020, this very particular form of compensation declared by households reached 23 billion euros. Under the mandate of François Hollande, who had decided to tax these incomes like those from work, it was sailing around 13 or 14 billion euros depending on the year.
Unsurprisingly, this increase in dividends benefits an even more concentrated minority of households – and we are not talking about farmers, laborers or employees. According to the reform evaluation committee set up by France Stratégie, which is not made up of anarcho-syndicalists (economists Agnès Bénassy-Quéré, David Thesmar and Philippe Martin are part of it), 62% of these dividends were received in 2019 by 39,000 French households (i.e. 0.1% of households), compared to 53% in 2017 … “Among them, 310 households recorded an increase of more than 1 million euros in their dividends in 2018 and 2019 compared to 2017, and alone represent an increase of 1.2 billion euros”, takes over from France Stratégie. Emmanuel Macron’s PFU therefore made 310 families particularly happy.
“No effect on investment”
The defenders of this reform justify it with a key argument: this financial windfall would be reinvested in the real economy, triggering a virtuous circle for activity. What we tend to summarize by the word “runoff”, unsuitable from an academic point of view. France Strategy is more than skeptical on this point: in the companies concerned, “There is no identified effect on investment or payroll”, observes Fabrice Lenglart, inspector general at INSEE and chairman of the evaluation committee. The virtuous circle promised by the Head of State looks like a very angular square. “It is consistent with what the economic literature says”, notes Fabrice Lenglart. And with experience: the increase in the taxation of capital by François Hollande in 2013 had not changed behavior.
What could these dividends fallen from the sky have been used for then? “At this stage, we objectively have few answers”, replies the chairman of the France Strategy evaluation committee, who sees this as a study site to explore. This study on capital tax reform is supposed to be done every year. The next edition will be delivered after the presidential election. Waiting for, the “Macronomics” remain full of mysteries, except no doubt for those who have benefited directly from it.