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Less income tax for all?
The prime minister has promised to remove the first payable tax band, an idea that looks like good news for all taxpayers
ALL TAXPAYERS could end up paying less income tax if Prime Minister Manuel Valls follows through with promises to remove the “first band” of income tax.
Whatever your total income is, this band covers that part of household income from €6,011 – €11,991 and it is taxed at 5.5%, making a maximum payment of €329 per family quotient “part”.
Removing it would take millions more people on lower incomes out of paying tax altogether, while all of the rest would also benefit, with those on more modest incomes benefiting more, proportionally, than high earners.
Financial paper Capital, with help from financial advisers Cyrus Conseil, estimates that a single person earning €20,000 would pay 36% less tax (€754, down from €1,170) while a person earning €50,000 would pay 4.2% less and someone on €100,000, 1.4% less.
A couple with two children earning €30,000 – 40,000 would come out of tax instead of paying €232-977, while the same couple with €50,000 would see a 44% drop, or with €100,000, 5.1%.
These figures result from the way France’s income tax system works, using bands and “parts”.
This works as follows: taxable income is that of the “household” – ie. one person living alone, or a couple, or a couple with a child with an income from an apprenticeship etc.
This income is then divided by the household’s “parts”, which is a figure that increases with family responsibilities: one part for a single person, two for a couple, two-and-a-half for a couple with one child etc.
The resulting figure is then taxed by bands with a first band at 0% and then the first “taxable” band at 5.5% (from €6,011 – €11,991) and then 14% (€11,992 – €26,631) and so on, with higher bands at 30%, 41% and 45%. Finally, the resulting tax is then multiplied up by the number of “parts” to arrive at the bill, meaning that larger families gain more benefit, per person, from the lower rate bands.
Mr Valls insisted on iTélé yesterday that removing the lower band is not, contrary to some speculation, going to mean a greater burden on higher taxpayers.
However, there has been confusion over the measure, with differing figures being bandied as to how many will benefit.
Mr Valls has referred to six million people, while Budget Minister Christian Eckert spoke of nine million. Where these figures come from is not clear, because, as Capital states, it should logically benefit all 19 million households that pay income tax (out of some 36 million households in all).
It remains to be seen whether, in fact, there will be other tweaks to make up the money, such as lowering the levels at which some of the top bands start, or raising their percentage rates. The measures will now have to go into the 2015 Finance Law, to be debated and passed by parliament before the end of the year.