Taxing Wealth & Enrichment: Lessons from the 1945–French ‘National Solidarity Levy’

Exceptional wealth taxes and capital levies have not yet received all the attention they deserve, notably because it is often assumed that most one-off wealth taxes introduced after the two World Wars ended in failure.

In this paper, Pierre Brassac argues that the 1945–French Impôt de Solidarité nationale (‘National Solidarity Levy’) – a capital levy on wealth as of June 1945 (with a top marginal rate of 20%) and enrichment through the Second World War (with a top marginal rate of 100%) – was in fact fairly successful.

KEY FINDINGS

• It led to about 2.4 million tax returns (15% of all fiscal households), representing approximately 2,700 billion francs in taxable wealth (i.e. around 260% of French national income and 85% of total private wealth in 1945). Total tax liabilities amounted to roughly 130 billion francs (around 12% of 1945 national income), in line with government expectations.
• The tax design included several original features: households could partly pay the tax in State bonds, honest taxpayers benefited from favourable treatment, and double taxation of households and corporations was avoided.
• However, because payments were spread over several years – mainly between 1946 and 1948, a period of high inflation in France (around 50% per year) – tax payments amounted to only 2.1% of national income in 1946, 1.2% in 1947 and 0.3% in 1948.
• Taxpayer-level data suggests that the capital levy acted as an income surtax, given the moderate rates and the numerous deductions. That finding lends historical support to the idea that taxing wealth at low rates may partly compensate for the income tax when it cannot fulfil its traditional progressive role when top incomes are depressed, whether because of wartime circumstances or purposefully.
• Although far from all wartime enrichment was taxed, judgements made about the ‘National Solidarity Levy’ at the time were perhaps too severe for what it could realistically achieve – an assessment close to that made regarding the confiscation of ‘illicit profits’.
• In international perspective, the French levy remained relatively modest in scope. In particular, the West–German Lastenausgleich (‘Burden Equalisation’) adopted in 1952 generated liabilities amounting to roughly 60% of 1952 national income, while inflation eroded payments much less than in France.
• Finally, the paper maintains that the ‘National Solidarity Levy’ was illustrative of two key challenges faced by Western European countries in the post–Second World War era: rebuilding the country was marked by a tension between inflation versus tax collection to solve distributional conflicts and taxing war profiteers turned out to be a much harder task than what public demand for justice hoped for.

AUTHOR

Pierre Brassac – World Inequality Lab, Paris School of Economics, and CUNEF (Madrid)