Tax reform for what? and for whom?

The reforms of the Brazilian state, a historically powerful agenda in the political scenario – due in part to the many distortions left to us by the ascribed and militarized Portuguese kingdom – have returned to being a parliamentary debate since the socio-economic collapse of the Second Dilma. term.

As State Reforms—and I frame here tax, administrative, and social security reforms—these legislative innovations, whether they are amendments to the Constitution or supplementary and ordinary laws, have policy decisions of paramount importance as background.

By this I mean that in these reforms the changes promoted by Parliament are directly related to the model of state to which society theoretically aspires; And indirectly, to the very model of society in which Brazilian citizens think, the acceptance of the idea of ​​the state, despite the various concepts that exist, as a set of institutions that govern individuals grouped through a common culture and reasonably tuned in material and spiritual. In other words, it concerns the bureaucratic structuring of the nation.

Thus, recent proposals for tax and administrative reforms need to be analyzed from a structural perspective: what would they really change in the role the state plays today? How will they change the role that each individual plays as a member of the nation?

Let’s start with tax reform. Taxes are one of the ultimate expressions of the sovereignty of a country and are the seal of obligation between the citizen and the state – and are essentially the means by which the preservation of the latter is viable. It is now agreed—the Reaganese model of the 1980s and 1990s advocated the opposite, grounded in the shaky theory of optimal taxation—that proper tax policy should be based on the principle of progressiveness, responsible for imposing more burdens on those with the greatest taxable wealth; It should be noted that this consensus is not limited to economic assumptions, but rather comes with concepts of justice and moral judgments.

Simply put, the tax system should, for practical and axiological reasons, burden those who have the greatest ability to bear such a burden, without falling into the practice of expropriation. It is the scientific conclusion reached by modern scholars on the subject such as Thomas Piketty.

This has not happened in Brazil, especially since Sarni State, when the number of IRPF teams was suddenly reduced from 11 to just three, and the maximum rate from 50% to 25%, according to the excellent article “Tax Progress: The Neglected Agenda,” by Sergio Gobetti and Rodrigo Aurier. .

While any minimalist citizen can recognize this, it’s worth insisting that Brazil levy heavy consumption taxes – about 49% of the group, according to OECD data collected in 2015 – have a low gradual in personal income tax – Exempts income below R$22,847.00 per year, and charges a maximum of 27.5% for income equal to or greater than R$55,976.00 per year – and practically does not tax property, such as large estates, large inheritances and the like. Everything is contained in the “Final Conclusions” of the master’s thesis by Fábio Ávila de Castro, tax reviewer at Federal Revenue and PhD in Economics from UnB.

The result of this scenario: Mr. Joao, a huge businessman and elite civil servant shop in the same supermarket and fill up at the same gas station – thus, contributes to the tax authorities in the same way in this regard; The salaried middle class suffers from the embezzlement of their income, proportionately much more than the embezzlement suffered by those who are highly paid, whether through formal contract or through the distribution of dividends; And companies, even those that can choose Simples Nacional, are encouraged to pay dividends as quickly as possible, given that the marginal rate of income taxes is high (IRPJ and CSLL together can be as high as 34%) and that there is no dividend and dividend taxation, Which is strange in the economically developed world.

Finally, as Fabricio Augusto de Oliveira points out, corroborating the same OECD data mentioned above, it turns out that, among the relevant economies, Brazil is the least taxed country on income and assets as a proportion of the overall tax burden – just over 22%, Whereas the OECD average is 40%.

The need for a deep reform of its progressive core seems obvious, doesn’t it? But, in the midst of a colossal socio-political failure, this was neither the agenda of legislative debates, nor the hysterical Sarapatil of the social networking underworld.

On the other hand, we have members of Congress concerned only and exclusively with the division of revenue between federal entities – which is why there is no value-added tax (VAT) -, limiting the discussion to a few tidbits about the already messy tax system or, of course, budget fires which must be extinguished; On the other hand, we have the claim of Krogh, who has unreliable ratings, denouncing the supposed existence of the Brazilian barbaric tax burden in relation to GDP, especially when compared to continental powers such as Latvia, Singapore and Costa Rica.

Expensive: Brazil does not bear an exorbitant tax burden; In fact, we are in “Series B” for the most taxing countries, just below the OECD average and below complex economies with large populations such as Spain, Russia and Turkey. For example, we charge much lower taxes than Italy and Portugal. Forget about American fetishism, because our model in state and society is different – just a quick look at the Constitution, whether you like it or not.

There is no mention of exemption from depreciation associated with establishing IRPFs for high-income groups; There is no mention of a reduction in the IRPJ + CSLL in order to tax dividends, while respecting the exemption margin; No mention of a drastic review of tax benefits, awarded based on subjective criteria, with no profitable peers that currently cost R$351 billion annually to the federal government only, Febrafite calculates; There is no mention of simplifying the payment and refund of taxes, aspects that insult Brazil; There is no mention of strong tax incentives for small and medium-sized businesses whose objective protects technological innovation… There is, at most, the creation or re-imposition of a tax to address the budget void, while keeping the existing structure intact.

Taking what was said at the beginning of the text, the “reform” of the state, such as tax reform, which maintains a regressive structure, means the tendency of Brazilians to a society that crushes the dispossessed and upholds brutal inequalities. No wonder some consider Brazil a former country.

Just to wrap up this topic on taxation, here’s a message for those who seek to direct public policies from the perspective of ghosts, and not from the perspective of the ends pursued by society—that is, from a teleological perspective: this discourse has increasingly less. space.

It has become absurd, for example, to avoid taxing large multinational corporations, even if it is an obvious one, for fear of “capital flight” to tax havens: the response to this traditional fraud has been the G7’s agreement to create a minimum from worldwide corporate taxation, which prevents companies from seeking tax havens and thus forcing them to pay more taxes in the countries in which they operate.

What if the government violates these standards? Economic sanctions imposed by the United States, the United Kingdom, Canada, France, Germany, Italy and Japan, the denationalization of capital has already been recognized as a tragedy in the post-1970s world.

Next Saturday (9), the author continues this article in which he will address administrative reform.