Is life insurance a source of social inequality? Tax reform proposals continue to come. (Credits: © – stock.adobe.com)
To transfer wealth while limiting taxation, life insurance is a very good solution … In recent years, it has been accused of increasing social inequality.
In addition to differences in wages, there are increasing questions about inequality in wealth. Life insurance, with its preferential taxation on inheritance matters, is the focus of some MPs. Their purpose? End the system that creates birth inequality. What suggestions are there? Is reform possible? What to expect Answers.
Life insurance, wealth transfer tax package
To optimize taxation, there are many tax loopholes. Without a doubt, one of the most popular is life insurance. What raises the most questions about this contract is its (very) reduced taxation during inheritance. In fact, payments made before the 70th birthday of the insured person are exempt from tax when transferred up to 152,500 euros per recipient. In addition to this amount, taxation is still beneficial since it is not inheritance tax that is applied, but a reduced flat rate: 20% between 152,500 and 852,500 euros, then 31.25%. For payments made after 70 years, the exemption is reduced to a global exemption of € 30,500. In this case, the higher amounts are subject to the standard inheritance tax.
Birth inequality is exacerbated by tax loopholes
Decrease in taxation of life insurance is getting more and more criticism. And for good reason: according to INSEE statistics, the richest 10% of households have 160 times more than the poorest 10%. This goes well beyond wage inequality, as the ratio is only 4.6. Life insurance allows the richest households to pass on their wealth by lowering inheritance taxes, preserving inequality from generation to generation. In addition, according to Socialist MP Christine Pires Bon, 1% of policyholders own 25% of outstanding life insurance. The average amount of their contracts? At least 600,000 euros.
Limiting hereditary life insurance benefits: these opportunities are being explored
Following her analysis, Christine Pires Bon introduced a bill aimed at limiting life insurance inheritance benefits. This proposal tends to increase the exemption from the payment of the first tranche of assets to € 300,000 and then further tax the upper tranches by bringing them in line with the standard inheritance tax: 30% from € 300,000 to € 1.1 million, then 45% to 1.9 million euros, and finally 60% higher. The task of the socialist deputy is clear: “Originally created for pension savings, this product has become an instrument of tax optimization for the highest estates.”
In a report addressed to the government, Jean Tirol, a Nobel laureate in economics, and Olivier Blanchard, a former chief economist at the IMF, argue that taxation should not put pressure on the deceased, but on the heir. This would allow taking into account all donations received by a person during his life in order to determine the basis for the calculation: “The logic of equal opportunities implies an interest not in those who give, but in those who receive, keeping as a tax base the total amount received by the beneficiary … “.
However, this last proposal presupposes a deep reform of the existing system, which is unlikely in the current context. Moreover, there is no certainty that such a decision will receive a good reception from the French. This is what the Tyrol-Blanchard report notes: “[La perception des Français] based on conflicting ethical considerations. Indeed, the vast majority of them believe that parents have the right to pass on their hard-earned inheritance to their children without paying taxes. But they also believe that most believe that it is unfair to allow for inequality of opportunity at birth due to different abilities. “A controversy that is not conducive to reforming what is called” income tax. ” Dead. “