Lula wants to tax the very rich – 07/22/2023 – Celso Rocha de Barros

The Lula government will try to collect more taxes from the very rich. The Ministry of Finance plans to propose new rules to tax exclusive funds, a type of financial application for those who have many millions to invest.

It’s even embarrassing to explain this, but, under current rules, the rich who invest in the exclusive fund “Guedes Totoso” pay less taxes than the middle class who, for example, invest in the fixed income fund “Merreca DI”. For a summary of the advantages that this provides to investors, I suggest the article by Lucas Bombana published in Sheet from last Thursday.

The government advocates that millionaire funds and middle class funds be subject to the same rules. It’s not quite Bolshevik at all.

At this point, you might be thinking: boy, Brazil has had a problem with its public accounts for many years. They had already cut money from all sides, and only now did they notice that millionaire paid less tax?

Everyone always knew. Even right-wing governments, such as Temer and Bolsonaro, considered changing the exclusive funds rule, but were unable to make the proposal work. I once asked former President Fernando Henrique Cardoso why not make Brazilian taxes more progressive (that is, make the rich pay proportionately more).

He replied that everyone knew it had to be done, but that opposing interests were strong in Congress. It was the same answer I got when I interviewed PT graduates for my book on the PT: nobody proposed because everybody knew they were going to lose.

And if you read this and thought, “well, so the problem is Congress, it’s democracy,” you’re wrong. The statute of the National Renewal Alliance (Arena), a party that supported the military dictatorship, stated: “for a fair tax system, an instrument of economic development and social redistribution, through the increasing use of personal and direct taxes, of a progressive nature” (article 2, item “i”). Despite this declaration of intent, income inequality increased enormously during the dictatorship.

It is not easy to collect tax from the rich.

However, there is good reason that even recent right-wing governments have considered tinkering with exclusive funds. Brazil has been facing a terrible fiscal crisis for many years. Anyone who assumes the Presidency of Brazil will have to look for where to get money without generating a social crisis. The little more than 2,500 investors that invest a total of more than R$700 billion in exclusive funds will probably survive well if they have to pay a little more tax. This is not true of most Brazilians.

The proposal on exclusive funds should not be confused with another government project, the Income Tax reform, which should be delayed until next year and is a more complex matter, which will require more negotiation.

The current exclusive fund tax regime is an obvious aberration, something that would make Von Mises sing “The International” in indignation.

I hope this makes the Lula government’s proposal easier to approve. The example of other governments shows that this may not be the case.

But it is to at least try these things that Brazilians vote for the left.

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