France is proposing to transform a tax subsidy for low earners into a broad reduction in employer payroll taxes designed to fund welfare programs and implement tax cuts that will directly benefit individuals and households. The 2019 budget proposal released yesterday by Finance Minister Bruno Le Maire highlights that the proposals will lead to €26 billion ($30.6 billion USD) in tax cuts. According to the Tax Foundation’s 2017 International Tax Competitiveness Index, France has the least competitive tax code among the 35 OECD countries. The tax reform for businesses will eliminate a tax credit first established in 2013 designed to lower labor costs for employers (CICE). The tax credit allowed employers to claim a credit of up to 6 percent of payroll excluding salaries that are greater than 2.5 times the minimum wage. The new budget continues an effort begun by the Macron government last year to scrap the CICE and implement broad reductions in payroll taxes that fund the French social security system—a much more direct method of lowering labor costs. The government expects that this proposal will be a €20 billion ($23.5 billion USD) tax cut. 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We respect the privacy of all our subscribers and you can learn more about our privacy policy here. Part of the reduction in individual and household taxes comes from a continued phaseout of France’s annual housing tax. This tax applies annually on an estimated rental value of property. Prior to beginning the phaseout, about 17 million households were subject to the tax. The government’s goal is to eliminate the tax for 80 percent of those households by 2020 and for all households by 2022. The tax was initially reduced by one-third according to the 2018 budget, and the 2019 budget will reduce it by another third. Combined with reduction in employee payroll taxes, the government said that combined tax cuts on households and individuals would be €6 billion ($7.1 billion USD). The reforms that impact payroll taxes will reduce the tax burden on labor in France. Currently, the average single worker in France faces a tax burden of 47.6 percent, the fourth highest in the OECD. Such a high tax rate on workers distorts labor markets and hurts economic growth. Several other tax changes are also happening in France. The government is in the process of lowering the French corporate tax rate from 33.3 to 25 percent by 2022. The 2019 budget includes tax simplification efforts to eliminate about 20 small taxes, and recently President Macron has proposed to reform the so-called “exit tax.” Reductions in the corporate tax rate and the tax burden placed on workers will help to improve the competitiveness of the French tax system. France could also reform its tax code to be more pro-growth by providing full expensing for investments and fully eliminating the annual tax on wealth. When you’re in last place, though, there is always plenty of room for improvement.