By PAULO NOGUEIRA BATISTA JR.*

Brazil is a tax haven for billionaires

Can I talk about Lula again? I ask and I myself answer: I can! After all, this is the last article for the year 2022. And who was the main figure in this very difficult year that we are going through? Is there a savior of the fatherland? If he exists, we know who he is.

Don't think, reader, that this enthusiastic opening paragraph means fervent and unrestrained admiration for the president-elect. No! I have my reservations, my doubts. It's natural. No one is perfect and no one deserves to be spared criticism. And the role of people like me will be not only to support, but also to criticize, if necessary, the future Brazilian government.

And, in particular, demand the fulfillment of campaign promises. For example, candidate Lula has said several times that he intends to “put the poor in the budget and the rich in the income tax”. Perfect. Nothing fairer, nothing more necessary.

What does this happy formula mean? Two things at least. First, modify the composition of public spending. And second, increase taxation on the super-rich.

Let's go piecemeal, Jack the Ripper style. On the spending side, the important thing is to ensure that government programs primarily benefit the poor, the miserable, the most needy. In the economist's euphemistic jargon: the low-income people. It is fundamental, therefore, to make room in the budget for a significant increase in social transfers, including Bolsa Família, to increase the purchasing power of the minimum wage and, also, for greater education and health expenses focused on the poorest. School lunch, for example. Popular pharmacy, another example. Also housing. Public transportation.

You see, reader, that I spoke of “making room”. This means cutting superfluous expenses, which benefit the richest. As the vice-president-elect, Geraldo Alckimin, declared, it will be necessary to go through government expenses with a fine-tooth comb and identify what can and should be cut, the inefficient, low-quality programs, and especially the expenses that benefit the super-rich. , those who already have excess income and wealth. This includes, by the way, reviewing tax exemptions and incentives, the so-called tax expenses, which represent no less than R$ 371,1 billion in 2022, equivalent to almost 4% of GDP, according to an estimate by the Federal Revenue .

I know that all this is much easier to write than to put into practice. For every ineffective and low-priority program, for every useless or dubious tax incentive, there are one or more interest groups, often powerful, fighting to preserve their privileges. And then, on the government's side, there's the no-holds-barred crowd, always willing to compromise. If the President of the Republic listens to these people, nothing important will be done.

The line of least resistance, dear reader, will always be to superimpose social programs on existing ineffective and income concentrating programs. Small problem: the level of public spending is high in Brazil. New increases will be difficult to reconcile with the stability and development of the economy.

And on the revenue side? At this point, the level of deceitfulness of ordinary economic discussions reaches a kind of peak. The subject is vast. I will deal with just a few aspects. I dedicate, in any case, a little more space to this side of the question, which tends to be neglected (and for good reason!).

In fact, it is essential to place the rich on income tax, as candidate Lula said. Better saying: put the super-rich. It is important not to leave room for political or political exploitation. It is not about increasing the tax burden on the middle class, which is already high. And much less on the poor population, which bears the heavy burden of indirect taxes. The super-rich, who dominate the traditional media, are usually able to sell as a tax increase on “society” any attempt to make them contribute a little more to the functioning of the State.

Here's the uncomfortable truth: Brazil is a tax haven for billionaires, the dark gang of buffoons. This class doesn't even want to hear about taxation.

Well, our country is one of the most unequal on the planet. In 2021, according to the IBGE, the richest 1% of the population had an average income 38,4 times higher than the average income of the poorest 50%. Notice, well, reader: 38,4 times! One of the contributing factors is the unfairness of the tax system. In 2019, a single Brazilian declared income of BRL 1,4 billion, of which BRL 1,3 billion in tax-free dividends!

The amount of injustices in Brazilian taxation does not fit in one article. I refer to my most recent book, Brazil doesn't fit in anyone's backyard, which brings, in its second edition, a slightly more expanded text on the under-taxation of the super-rich. And I intend to return to the subject, in this column, in 2023.

For now, I list a few scandalous examples. The individual income tax becomes regressive after the range of 30 to 40 minimum wages (that is, it taxes proportionally less higher incomes). Capital income is exempt in the individual or subject to proportional or low progressive taxation. The maximum marginal rate is small (in theory and from the point of view of justice, nothing prevents establishing higher marginal rates on the super-rich). In addition, the non-correction of the progressive table overloads the middle class, including the lower middle class.

The injustice is greater than you can imagine. In 2020, for declarants occupying the top of the pyramid (the richest 0,01%), 63% of income was exempt, on average, and 30% suffered exclusive taxation at source! That is: only 7% of earnings, on average, entered the progressive table. In 2020, the average effective rate of the richest 0,01% was only 5,4%, close to that of wage earners who earn around R$6.500 a month! (Data from the Federal Revenue Service, which were passed on to me by the tax auditor Paulo Gil Hölck Introíni.)

Is Brazil a tremendous tax haven for the super-rich?

Wealth taxation is also modest. Inheritances and donations are subject to a maximum rate of 8%. Yachts and private planes are exempt from IPVA. The tax on large fortunes, provided for in the 1988 Constitution, was never created. The Rural Land Tax corresponds to only 0,1% of federal revenue.

To complete the picture, the weaknesses of the tax administration, aggravated during the government of Jair Bolsonaro, allow billionaires to escape taxes with relative ease. They practice the so-called tax planning, with assistance from highly paid tax lawyers.

The beneficiaries of this tax haven are exactly the same ones who, through their servants – a legion of economists and economic journalists – fill the traditional media with claims for “fiscal responsibility”.

We will see what the new government will do to put “the poor on the budget and the rich on income tax”. Resistance to change will be strong, as always, but it's a fight worth fighting for.

*Paulo Nogueira Batista Jr. he holds the Celso Furtado Chair at the College of High Studies at UFRJ. He was vice-president of the New Development Bank, established by the BRICS in Shanghai. Author, among other books, of Brazil doesn't fit in anyone's backyard (LeYa).

Extended version of article published in the journal capital letter, on December 16, 2022.

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