The French family tax splitting (quotient familial) not only favours high-income families, but in particular couples which great earnings disparities and hereby a traditional male breadwinner model of the family. The abolishment of the family tax splitting in France would significantly increase women’s labour market participation and thus can be seen as an instrument for promoting gender equality and for fighting against family poverty.

French presidential candidate François Hollande recently proposed to reform the country’s family tax splitting system. He thinks of replacing the current tax cuts for children by a single tax credit regardless of household income. Another option would be to lower the tax ceiling for high income families. His main argument against the existing form of “quotient familial” is that it favors high-income couples. However, there exists another, even more important reason why the family tax splitting should not only be reformed, but abolished: Gender Equality! This article explains why.

There are several European countries that compensate for family expenses when it comes to the taxation of household income, as for example France and Germany. In Germany, there’s a married couple’s tax splitting (Ehegattensplitting), a tax system in which husband and wife each pay income tax on half the total of their combined incomes. In order to calculate the amount of tax, the taxable income of both spouses is summed and divided by two. Finally the tax rate schedule is applied to both halves for each spouse and the resulting amount is added to the common tax duty (no income ceiling). The number of children is not taken into account by the calculation. The married couple’s tax splitting (Ehegattensplitting) is the second most expensive instrument of German family policy (following lump-sum child benefit: Kindergeld); according to the federal government, it amounted to 19.1 billion Euros in 2005.

In France, the family tax splitting (quotient familial) seeks to provide relief to large families by taking the number of children into account and by attributing an entire supplement to each child from the third child onward. The French system takes into account the number of children below the age of 18, which constitutes one of the main differences between the two countries’ family policies. The splitting divisor (number of shares) rises with the number of children and the resulting amount of tax resulting from this divided income is multiplied by the number of shares. The family tax splitting (quotient familial) is subject to an income ceiling which varies according to the family’s situation. But as the ceiling is very high, most families do benefit from this family tax splitting in France.Courtioux, Laib, Le Minez and Mirouse (2004) use a micro-model to estimate that family tax savings due to the family tax splitting reached 11 billion Euros in 2004.

Because the tax schedule in both countries is progressive, both the German and the French tax splitting system imply a rise in tax savings with total family income and are thus favoring high-income households. But what is worse is that they favor couples with only one salary or markedly dissimilar salaries. For such couples, both splitting systems slow the incremental increase of the tax rate and thereby cause a rise in deductions. It therefore seems that both the married couple’s tax splitting (introduced in Germany in 1958) and the family tax splitting (introduced in France in 1945) are derived from a traditional family model with a sole or main breadwinner (the men in most cases).

The progressivity of the tax systems implies that second earners within a household (mostly women) face a high effective marginal tax rates. An increase in women’s labour supply would lead to losses in tax deductions and seems thus less beneficial. Hence, the progressive tax splitting systems are less conducive to the employment of women relative to that of men within a couple.

The negative impact of the tax system on the labour supply decision of many women in France and in Germany is not only detrimental for women’s economic empowerment, but also hinders many low-income families to get out of the poverty trap. This, in turn, is proven to have a negative impact on children’s development and well-being.

To equalize effective marginal tax rates of men and women, both Germany and France have to introduce individual taxation. As often when it comes to gender equality and family policies, the Nordic countries can be considered as trendsetter, as they have already introduced individual tax systems. Several studies as for example by Eissa and Hoynes (2002), Callan, Dex, Smith and Vlasblom (2003) illustrate that the breakup of the family taxation in France and Germany would significantly increase women’s labour market participation and thus family income.

Completely abolishing the family tax splitting would certainly aggravate with immediate effect the financial situation of large families with large income disparities between the spouses and a relatively low total income. However, such an abolishment would free up enormous resources to compensate low-income families and large families. Beyond that, the free resources should be implemented for improving the supply of child care for children, particular for those aged between zero and three years, as well as for improving women’s access to the labour market, particular for those who are low qualified. Helping women to reconcile family and professional life still is the most effective way to combat child poverty.

Source: Angela Luci’s own contribution

For more detailed information about this subject, see:

Article in Horizons Stratéqiques by Angela Luci (in French)

Article in Zeitschrift für Sozialreform by Angela Luci (in German)

FES Report in French / in German