The highest court of France, the Constitutional Council, last week upheld most parts of President Nicolas Sarkozy’s first round of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reductions in a challenge brought by opposition Socialist Party leaders. One provision that did not survive was a proposed mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. .
The deduction would have allowed French homeowners to deduct their mortgage interest payments for the first 5 years of a mortgage on a principal residence, with a maximum benefit of €3,750 (about $5,050) for a single person and €7,500 for a couple (about $10,100). The deduction would have been available to all homeowners, including for homes purchased before the law took effect.
The Council ruled (French) that because the law’s stated purpose was to help people who are not yet homeowners by providing an incentive to buy, giving the deduction to existing homeowners, and extending it indefinitely into the future, was a “disproportionate tax advantage compared to its objective,” in violation of the French Constitution.
Other provisions that survived challenge include eliminating income taxes on overtime work, reducing the top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. , and exempting small business investments from France’s 1 percent wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. . Interestingly, the Council cited the French Constitution’s “right to obtain employment” section to uphold the easing of restrictions on working overtime.
We’ve written here and here about problems with the home mortgage interest deduction in the U.S., which will cost $90 billion in 2008 (compared to the French proposal, which was only about half that, adjusting for population). Despite its purported objective of increasing home ownership, all it really does is increase home prices.
And we’ve previously noted that like France, virtually every other OECD country is lowering tax burdens, but the U.S. is lagging behind.
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