Pensions: Income Tax Reform to Promote Equality

Against the backdrop of a tight budget, the Council on Compulsory Levies (CPO) has recommended strengthening equality among French citizens with regard to income tax (IR). 

These recommendations, which have a budgetary impact ranging from stable revenues to an increase of 1.7 billion euros, come as the government plans to make a 60-billion-euro effort starting in 2025 to restore public finances.
 

"The report aims to strengthen equality among citizens with regard to income taxation in the interest of tax justice and consistency," said Pierre Moscovici, president of the CPO, during a press conference. "To ensure that tax cuts are accepted, it is essential to reinforce equality before the tax system, because that is the key to tax acceptance," he added. However, he emphasized that we should not rule out the use of tax policy as a tool, provided that the measures are "measured and targeted."
 

Better Account for Family Expenses
To achieve these objectives, the CPO recommends taking better account of family structure and child-rearing expenses in the income tax system, which was paid by 18.5 million tax households in 2023. 

Among the suggestions:
• Raising the family quotient threshold: The CPO proposes taking family structure into account more effectively to ensure fairer taxation.
• Full application of the tax deduction to married couples: To prevent 3 million middle-class tax households from being disadvantaged by joint filing, the CPO proposes applying the tax deduction in full to married couples.
• Elimination of the additional half-share for single parents who have raised a child alone: The CPO considers this measure unjustified.
 

Reducing Tax Benefits for Wealthy Retirees
The CPO also believes that certain preferential tax treatments are unjustified. It proposes eliminating tax benefits—such as the 10% tax deduction—that benefit all retirees, including the wealthiest. This recommendation comes as the government has postponed the indexation of pensions by six months, to July 1—a decision criticized by the left and the National Rally (RN).
 

Other suggestions for tax reforms
The CPO also mentions distortions that favor furnished rentals over unfurnished ones and tax-exempt salary supplements, such as the value-sharing bonus, which it calls for eliminating. In addition, it recommends adjusting or even eliminating certain tax credits, such as:
• Tax reduction for tuition expenses
• Tax credit for investments in overseas territories for individuals
• Tax credit for employing a live-in domestic worker: The rate could be reduced from 50% to 40%
• Tax reduction for charitable donations: The rate could be reduced from 66% to 50%
 

Combating Fraud
The CPO also emphasizes the need to step up the fight against fraud in the taxation of personal income. In 2023, income tax (progressive) and social security contributions (proportional) generated 262.8 billion euros, or 9.3% of GDP.
The CPO’s recommendations aim to strengthen equality among citizens with regard to income tax by better accounting for family responsibilities and reducing tax benefits for the wealthiest. These measures, which could increase tax revenue by 1.7 billion euros, are intended to bolster public acceptance of taxation in a tight budgetary context.