Fiscal irresponsibility is the daughter of tax injustice – 01/04/2024 – André Roncaglia

The reform of consumption taxation was an achievement of 2023. The simplification will bring efficiency gains, but will make little change in the regressive nature of the Brazilian tax structure: the tax burden on the consumption of the poorest 10% should remain at 48%, while that of the richest, by 16%.

Greater progressivity requires putting the rich on income taxes. However, the municipal elections this year and the fatigue of the 2023 reforms will postpone the confrontation until 2025. After all, this issue animates the most primitive instincts in our oligarchies.

The reasons appear in the Report on the Personal Distribution of Income and Wealth of the Brazilian Population based on data from the 2022 Personal Income Tax (IRPF), organized by the SPE-MF (Economic Policy Secretariat of the Ministry of Finance).

Half of the total income declared in 2022 went to the richest 10%, while the poorest half of the declarants accounted for a mere 15% of the total income. The richest 1% earned 24% of total income. The richest stratum (0.1%) received half of the top income (and 12% of the total declared income).

The concentration of wealth is even worse. In an egalitarian country, the richest 1% of society would own 1% of total wealth; in Brazil in 2022, this group accumulated 32.2%. The majority of declarants (90%) do not have the wealth to cushion variations in income. Saving is a luxury for few in Brazil!

In terms of gender, women account for 40% of the total income declared up to 15 minimum wages per month, but this drops to 13.1% in the range of 320 minimum wages. The fragility of assets is evident: women hold only 29% of the total declared wealth, with an average asset value 46% lower than that of men.

Unlike developed countries, our tax system increases inequalities. Most taxpayers pay tax on R$7 out of every R$10 of income. At the top, the situation is reversed: R$7 in every R$10 of the income of the super-rich (0.1% of the population) are, by law, exempt from taxation. Exemptions and deductions from the tax calculation base due reduce the effective rate paid by the richest.

The “exempt income” category reveals the anatomy of tax injustice: 36% are profits and dividends — which totaled R$556 billion in 2021, according to a Folha report — while donations and inheritances represent 8.1% of the exempt total.

As for deductions from the tax base, almost R$4 in every R$10 are due to medical expenses in the private sector: the richest 1% accounted for 23% of the entire amount deducted for this purpose.

It is also worth highlighting the growth in deductions per cash book. Self-employed workers, auctioneers and notary office holders can deduct from the taxable base expenses with employees and commercial space rental or water and electricity bills. Here too, the richest 10% concentrate 84.7% of these deductions, suggesting the increase in self-employment at the top and accumulation of tax benefits.

After exemptions and discounts, the effective IRPF rate in 2022 paid by the richest 1% was 4.2%. The ultra-rich (0.01%) paid a paltry 1.76% on their millionaire monthly income, the same rate paid by the poor in the median of the reporting population.

Limiting these deductions and exemptions, in a future reform, will make the IRPF more progressive, mitigate gender inequalities and bring fiscal balance. As an illustration, a uniform rate of 6% on the R$1.7 trillion in exempt income (in 2022) would practically eliminate the expected deficit in 2024 (R$100 billion).

The rich can pay for the fiscal adjustment that they demand so much from the federal government.

As we can see, fiscal irresponsibility is a child of tax injustice.

LINK PRESENT: Did you like this text? Subscribers can access five free accesses from any link per day. Just click the blue F below.