THE SOCIOECONOMIC CONSEQUENCES OF BRAZIL’S TAX POLICY: A TAX EXPENDITURES-BASED ANALYSIS

THERESA DE OLIVEIRA

Abstract

Introduction

In the face of unprecedented income inequality, people in Cuiabá enter a two-hour-long line to dispute over bone rests that a local butcher is donating (Braziliense, 2021). Meanwhile, the average monthly income of the congressmen that defended a Retirement Reform proposal that prejudices lower social stances was 26 times higher than the citizens’ Retirement Grant (Guimarães, 2019). Parallelly, it is revealing of Brazil’s Economy Ministry’s social purpose to mention that included in the national budget are subsidies to cover the Income Tax (dividends) of entrepreneurs, who although are among the richest class in the country, do not contribute as Physical Person (PF).

The initial two contrasting realities not only make the effects of Brazil’s tax policy explicit, but also they demonstrate how feeble the Brazilian Government’s commitment to measures of quality policies such as the United Nations’ Sustainable Development Goals is, especially the SDGs 10 (Reduced Inequalities) and 8 (Decent Work and Economic Growth). In the country, the richer one is, the less they are taxed: a feature reminiscent of feudalism that the Brazilian Congress-affiliated entrepreneurs accomplished through their political influence. To contextualize, Brazil’s tax framework works in an overall regressive fashion, meaning those who are less able to contribute pay more as a percentage than those who are more able to pay (IPEA, 2019). In addition to taxing the poor over the rich, Brazil goes further: it absolves the rich from paying the few direct taxes with which they could contribute to the country’s progressiveness (Pessôa & Pessôa, 2020). However, Brazil’s inefficient relationship with social economics does not summarize in what it does to directly take money from families that earn less than 28 dollars per month. Therefore, it is clear that Brazil’s tax system plays an important role in deciding

winners and losers in Brazil’s economy. Having this stated, how does the unequal nature of Brazil’s tax system affect inequality overall?

With inefficient revenue redistribution and a regressive taxation system, Brazil’s economy ministry privileges the country’s upper class by conceding exaggerated tax incentives. By granting subsidies to non-priority sectors, it ignores the lower class’ need for structured social security (a type of governmental policy that benefits less privileged individuals), promoting inequality. Thus, the state is an inverted Robin Hood that takes from the poor to afford the Brazilian bourgeoisie’s social and political privileges. The result of this inversion? People fighting over bones to feed their skeletal children. When compared to other nations’ tax systems, Brazil generally stands out negatively. It has a peculiar tendency of not following OECD’s trends, which places the country in a critical stance. Although this issue is responsible for most — if not all — inequality in Brazil, it is saddening to acknowledge how little it has been brought to academia, especially from a news-based, analytical, and reform-considering perspective.

Literature Review

Since 2014, when Brazil entered a massive economic crisis that left a public debt of $750 billion (Mars, 2014), the volume of academic articles about its economic machine has increased massively. Whilst the economy became a popular debate topic, as illustrated by Mars’ report, fake news arose. Gradually, the scholar’s role then transitioned from exploring to re-explaining. This literature review focuses on what came afterward: more critical content that regards Brazilian public expenditures addressing the tax structure both generally and specifically to Brazil’s case, inequality both generally and specifically to Brazil’s case, and the need for socially aware tax reform.

Firstly, as a country whose fiscal policy prioritizes indirect and regressive taxing, even though its income tax is nominally proportional, Brazil uses public expenditures to “incentivize economic sectors.” Without considering the open door for corruption that those may represent, Howell and Tanzi (2000) claim that tax subsidies are questionable when it comes to outlining a developing country’s public administration plan. The line between incentivizing sectors and promoting privilege is thin, and not crossing it involves governmental transparency: an aspect that Howell and Tanzi did not leave behind. Although their article holds frequent spaces for their well-supported interpretations, they often justify those assumptions with early 2000s data. As an American lawyer, Edward Kleinbard’s Tax Expenditure Framework Legislation brings to the discussion a perspective that Tanzi and Howell’s lacked: the legal aspect. As he argues, the state’s budget frameworks generally do not take tax expenditures into account, which generates disorganization (Kleinbard, 2010). Using various definitions that help the reader better understand the system beyond inequality, Kleinbard succeeds in his purpose of showcasing the legal aspect of tax expenditures.

When it comes to the analysis of inequality itself, scholars claim that depending on its source, the consequences of the resultant disparity in opportunities may vary. Perez-Arce et al. (2016) are consistent as they detail how taxation affects people’s ability to afford a decent living. This directly reflects in the Brazilian reality: for instance, only with the 1988 Constitution were tax expenditures included in the Brazilian legislation (Henriques, 2009). This lateness precedes mass corruption, tax privileges, and a great influence of rich employers over politics. The last two factors being legal and commonly unnoticed, an oligarchic-resembling political body aids inequality, as Medeiros and Souza (2013) agree.

In Medeiros and Souza’s proposal of a welfare state in the 9th most unequal country on the planet, the qualitative analysis allowed them to evaluate how the State contributes more to inequality than the private sector and how one of the main causes for this may be feeble social security policies. Besides pioneering that tendency in their political moment, they brought to academia topics such as the redistribution paradox, critics of the regressive system, and public institutions' legitimacy.

Moreover, Brazil’s heavy taxation is not heavy on the poor — instead, it is heavy because it burdens a less wealthy portion of the population. Accordingly, it relies not only on economic factors such as crises and external debts, but to a much deeper extent in political and social settings. The question is: how did Brazil go from 16.1% to 32.6% in taxation as a percentage of GDP in less than 20 years? Ondetti (2015) affirms that the primary cause of the Brazilian disparity in comparison to Latin America is the weight of privileged interests in public policy-making. Ondetti’s approach, fearless of stating political affairs’ influence on the economy, provides clarifying quantitative information about the Tax System, as well as a comparative approach and a defense of the thesis that elitism is the root of socioeconomic inequality (Ondetti, 2015). However, a common misconception among scholars, one that Ondetti did not avoid, is assuming that because citizens have to pay a proportional 27.5% tax over their income, the rich categorically pay the same percentage amount as the poor. It follows that this topic has been ordinarily explored with the lenses of the revolted people, rather than diving into rational proposals for the state’s revenue management. But ordinary does not fit Medeiros, Souza, and Ondetti’s definitions of “fair” wealth.

Recalling Kleinbard (2010)’s claim that tax expenditures, mainly open-ended and indefinite-termed subsidies, are frequently not regular, it becomes evident how Brazil’s case relates. However, research that connects tax expenditures (about governmental programs) and economic inequality is extremely scarce. Kleinbard shows that, excluded from a nation's budget, tax expenditures allow Congress to capitalize on the excuses of fiscal illusion. As a counterpoint to Howell and Tanzi’s (2000) positioning, Kleinbard allows academia to address irregularities in a national budget.

Finally, scholars found that solutions to these problems in emerging markets must begin by implementing a higher tax level, a reduction of their reliance on foreign trade, and policies that do not generate market disincentives. As proven by Howell and Tanzi, the first strategy should be correcting priorities. They have not, however, detailed those priorities. Furthermore, covering the aforementioned factors, Junior (2020) analyzes three cases of reform proposals: one by the public power, that did not address tax justice to any extent; the second by a private initiative, that aims to combat economic regressiveness; and lastly, a project by an international organism, that adapts Brazil to Organization for Economic Co-operation and Development (OECD)’s trends. Contradicting the common sense, Júnior and Santos (2020) propose four key principles to any Brazilian tributary reform: revenue collection (that maintains the importance of the tax burden on all citizens); vertical equity (that proves constitutionally the need for progressivity); horizontal equity (that puts the State in a position of preventing arbitrariness and unjust taxation); and efficiency (that reminds that any public budget administration must stick to constitutional principles). According to him, Brazil is rather far from the effective observance of these principles, which puts them in a position of following the academic tendency.

Compared to other countries, Brazil is alarmingly dislocated. Low revenue collection, weak popular yielding, regressiveness, and unequal redistribution of wealth: all of these elements compose the economic mosaic in Latin America. In addition, the people’s dissatisfaction with both the collection and the usage of resources breaks the binomial fiscal-social pact: something that is widely explored in Atria et al. (2019)’s article. This directly affects common sense in regard to the economy, once it drags people to undermine their nations’ successes even in times of accomplishment — furthering the gap between Latin America and the rest of the world (Atria et al., 2019). Generally, the country seems much behind in terms of progressiveness, fair redistribution, and citizens’ compliance (Lustig, 2017). When associated, Lustig and Atria et al.’s innovative papers dialog in a complementary fashion, the former being more critical and the latter being more expository.

Finally, it is essential to state that along with only Estonia and Latvia (Asen, 2020), Brazil does not tax dividends: an absurd measure that deliberately puts the owners of production mains in a place of allowance (Gobetti, 2017). As discussed by Gobetti and exemplified by Asen, such as other sub-developed parts of the planet, Brazil has a biased political voice in the economy — which makes it elitist and does not serve the constitutional principle of revenue’s social purpose. Whereas Gobett’s work makes explicit suggestions towards Brazil’s flaws, Asen’s is more illustrative and, as any news, impartial.

Significant research has been conducted on the topic of economic inequality in Brazil, aiming both to inform the reader, to evaluate the system, to compare it to other states, and to propose changes. Undeniably, most articles published after 2014 have demonstrated how inefficient and regressive the overall system is. However, little connection exists between news and academia hitherto: a tie that I find essential for the role of the political science scholar is to analyze political concerns, and news-specialized media channels the last one. Another weakness, one that affects to a special degree the Brazilian scholars speaking about their country, is an impregnated bias that tends to make the author’s opinion transparent. Vast research is still needed in the field with legal, administrative, and collaborative approaches for divergent data is not uncommon. Overall, it is essential to state that most existent articles focus on the outcomes of inequality, on the outcomes of tax expenditures, and the outcomes of public administration in Brazil. Therefore, this article is necessary as it will deepen into the roots of Brazil’s disorganization and brief the reader into a reality that is hidden from most Brazilians.

Methodology

Having introduced the categories of literature used in this article’s bibliography, I will now showcase the primary sources that validated the thesis. This study analyzes primarily the Economy Ministry’s Tax Expenditures report from 2019, which reveals how the priorities for the government budget are subverted in Brazil. Complementing this report and effectively analyzing how those investments result in society, this paper uses the National Report on Special Programs from 2020. Moreover, when it comes to non-governmental reports on economic inequality, two studies stand out. The first focuses on income taxation in Brazil and how that impacts revenue redistribution (Fernandes et al., 2019), whereas the latter is a generalist study about economic inequality in Brazil (Georges & Maia, 2018). Both of them utilize data from 2016 to 2019 to illustrate how Brazil’s usage of tax expenditures is uneffective. While researching in Google Scholar and JStor, I often used keys that include, but are not limited to “tax concessions,” “subsidies,” “economic inequality,” “reform proposals,” and “Brazil’s tax policy,” not applying filters but prioritizing articles written after 2000. Naturally, many sources are in Portuguese, and for that I translated the sources in a free fashion. To strengthen my research’s efficacy, I used the qualitative sources to elaborate my arguments in Research Findings and Analysis, the reports to critically analyze in my thesis, the legal and didactic ones to provide background, and the

qualitative sources and Government reports and documents to form my perspective throughout my proposals. Perhaps the most striking limitation of this research paper is the constantly changing political scenario that Brazil faces. My efforts to overcome that have been solidified by the use of news-related media in favor of academic works, by including both in my bibliography. With that, I made my research able to dialog with the Brazilian reality in a much more concrete, yet analytical way.

Research Findings and Analysis

I. Upper Class’ Power Mechanisms

While the concept of State is commonly portrayed as either the people’s savior or foe, it is questionable to state that social disparity is not caused by the rich, but by the government because of a single factor: the major influential role that the wealthy play in the Brazilian Congress. It is this influence that makes unconstitutional public deliberations (such as the low taxation of inheritances, or the non-taxation of dividends) an unpalatable reality (Sindifisco MS, 2018). This way, Brazilian regressiveness is made not only by economic calculations, but also social and political affairs.

Two mainstream cases of this influence in Brazilian politics are Luciano Han and Jorje Paulo Lemann; both being among the richest men in the country. The former owns the stores’ franchise Havan and is the right-hand man of the current president Jair Bolsonaro, and the latter is the billionaire owner of AMBEV, a national drink monopoly. Their influence in the political world ranges from “recruiting” students to become politicians that favor their interests (Montesanti, 2019) to directly counseling the politicians (Sperandio, 2019). Therefore, it is valid to state a victory that Brazil had on that matter by prohibiting the financial sponsoring of political

campaigns by businesses (Sindifisco, 2018). However, even though the direct link between the two worlds is not legal, it still occurs as aforementioned: to illustrate even further, there is a “business caucus” in the Brazilian Congress, referred to as Bancada Empresarial in Portuguese. In Brazilian politics, mechanisms the rich use to maintain power are various: influence in the Congress; monopoly; corruption ties with politicians; and market maneuvers that directly impact the political scene (Perez-Arce et al., 2016; Ramos, 2020; Sindifisco MS, 2018; Guimarães, 2019). Although Ondetti (2015) did not mention those examples in his work, they exemplify the outcomes of Ondetti’s line of thought perfectly: the rich do not pay 27.5% because they have influential power over policies, and not the other way around.

As a recent example, a specific measure caused a national-wide alarm: a R$5,700,000,000 fund to invest in politicians’ campaigns for the 2022 election was approved (Resende et al., 2021). The message transmitted by this measure reaffirms this paper’s thesis: Brazilian economy is regulated by the people-in-power’s interests: in that case, politicians that wish to be reelected. It can even benefit businessmen who want to become representatives but cannot privately finance their campaigns (Sindifisco, 2021), not to mention the subversive political morality behind the over-financing of election campaigns.

Moreover, the claim that undertaxation of such type exclusively relies on the business class is not absolute. As indicated by Sachsida (2017), although the more recent proposals of continuing the taxing of financial transactions and great fortunes (a measure that was done from 1997 and stopped in 2007 as a provisional contribution) raised by congressmen, it is necessary to analyze that the “new” tax that was debated in the Brazilian Congress would fall on the producers of the luxurious goods rather than on the rich themselves. Thus, it is made clear that besides the working wealthy — such as businessmen who earn dividends — there exists a dreadful category: the non-working wealthy. Whilst the former uses the mechanisms described in this paragraph to maintain its privileges and become exponentially richer, the latter does not even have to waste energy in doing so. The non-working wealthy are characterized by being descendants of working wealthy: in capitalist democracies, this phenomenon is called inheritance. Fernandes (2021) thoroughly writes about the Tax on Transmission Causes Death and Donation (ITCMD): Brazil’s inheritance tax. Likewise, on increasing the tax over inheritance and fixing the aliquot for it, progressiveness exists while the Federal Receipt will have more revenue and thus will be able to follow with more property the fiscal philosophy of its country’s constitution (Fernandes, 2021).

That is where the two types of tax expenditures approached by this article come together in the discussion about economic inequality. The special programs that theoretically incentivize sectors are, as explained, based on tax subsidies that end up, in a significant portion of the cases, not being implemented fully at the end. This intermediary money goes to what seems to be the current government’s noble cause: the enrichment of the wealthy (Pêssoa & Pêssoa, 2020). Under the unanimous assumption that Brazilian wealth comes from the workers (generally participants of the lower class), it is key to understand the concept of the rich’s social-tributary debt. Validated by this article, and meaning the overdue public expense at which the upper classes have been in Brazil, it makes a potentially productive and contributing bourgeoisie into a national liability that is afforded by the working class. The critical point to the social-tributary debt of the upper classes is that it generates what economists call taxative regressiveness.

II. Economic Regressiveness is a Constitutional Contradiction

Indeed, a regressive taxation system fundamentally and philosophically contradicts the Brazilian Constitution’s third article, which states how eradicating poverty and marginalization alongside reducing social and regional inequalities are among the national goals. As well as the aforementioned, the Article 145 portrays the dissonance between theory and practice in Brazilian politics: “Whenever possible, taxes will be of a personal nature and will be weighed according to the taxpayer's ability to pay, the tax administration being allowed, especially to give effect to these objectives, to identify, respecting (...), income and economic activities of the taxpayer (Federal Constitution, 1988).”

Recalling Junior (2021), one can connect this Article to the “Brazilian regressiveness” (even though the income tax is nominally proportional): one that is based on indirect taxing, meaning a broad focus on taxing goods and services that results in a proportionally higher contribution from the poor and a lower one from the rich — which happens also through a tax named ICMS (Tax upon Goods’ Circulation and Services’ Provision). Therefore, even though a progressive Constitutional Fiscal Philosophy exists in Brazil, the practical economy does not operate accordingly.

Thus, I conclude that both the 3º and the 145º articles of Brazil’s federal constitution are ignored by policies that maintain that social stratification. Assuming that one will do what is in this power to assure that one’s interests are accomplished, the Brazilian upper class is a modern-day nobility.

III. Undertaxation

With those lenses, not only are they privileged merely by their financial fortunes, but also kept from making social use of their wealth (Júnior, 2019). Although Brazilian nobility does not have a title of knighthood, it does have privileges, fiscal privileges. However, it is important to point out that even if Brazil did follow exact proportionality in its tax policy, that would still be unjust to the lower classes whilst favoring the highest (Kagan & Howard, 2021). By doing so, it would also ignore the aforementioned constitutional articles.

Perhaps one of the cruelest points in the debate that addresses the roots of outcome inequality in Brazil is the vision that Brazil is a Fiscal Paradise for multimillionaires. To support this claim, data is the best evidence. According to an Applied Economy Research Institute (IPEA) research, families that earn until two minimum wages pay on average 48,8% of their brute income in tributes. Meanwhile, the ultra-rich (those who earn an average taxable monthly income of R$135,000) pay 9% in taxes whereas the rich (with an average taxable monthly income of R$34,000) pay 12%. The rich’s income comes significantly from dividends, admitting that business owners are among the richest sectors of the country (Lagranha, 2021). One of the central points of the issue is the fact that only the business of a businessman is taxed (Pupo & Brant, 2021). His personal income, the dividends, have not been taxed since 1995: a phenomenon referred to in this paper as unconstitutional under taxation, one that leads to the wealthy’s social-tributary debt (which will be further explored).

Incontestably, from these absurdities, a great popular dissatisfaction has been cultivated towards the government. In the arts, this dissatisfaction has been vastly explored. “Xibom Bombom” from As Meninas (Cristina, 2019), a band that used to represent lower classes in the ‘90s, speaks in a conscious way about economic disparity and illustrates the people’s desire for basic resources: “I want to live well, I want to feed myself. With the money I earn, I cannot even start; And the reason everyone already knows: it's that the top goes up, and the bottom goes down.” Considering that the common citizen works until June 2 to afford tax payments (Ondetti, 2015) only to come across their money being used to proportionate corruption and non-efficient public projects, one has every right to protest. A popular event that addressed this uprising happened in 2015. A series of coordinated protests marked Brazilian streets since that year with furious crowds yelling that they would not “pay the duck” (which means to be fooled) as they wore T-shirts and symbols recalling the campaign’s symbol, a giant plastic duck (FIESP, 2015; Bezerra, 2016). What Paulo Skaf, multimillionaire right-wing politician, did not want the masses to know was that the movement tried to inflict the role to pay for the national crisis upon the middle class and the poor whilst the real root of the issue was very far from the sweaty protestants. What becomes known among political analysts as “Trojan Duck” (Sindicato dos Bancários, 2017) is a loyal picture of the idea that to the most privileged social orders that are established in political power — being it for representation or influence — it is easy to manipulate unlearned workers that just want to promote social justice. Little did they know: while wearing that bright-yellow shirt to fight for economic stability, it was their pockets that were being emptied.  

IV. Tax Expenditures: Misprioritized Subsidy Programs

Thus, the ineffective redistribution of wealth has an overwhelmingly negative impact on Brazil’s political struggle to combat inequalities. Nevertheless, the sub taxation of the wealthy is not the only way the Federal Government does so. A vital part of this binomial issue regards special programs that the State proposes to “incentivize” certain economic sectors. According to the Economy Ministry (2019) in its Tax Expenditures Report, tax expenditures exist to offset expenses incurred by taxpayers with services for the government; compensate for actions that complement the typical functions of the State developed by civil entities; promote income equalization between regions; and encourage a certain sector of the economy. On the same document, among many others, the following sectors that are covered by tax exemptions are mentioned. First, the Support Program for Technological Development of the Equipment Industry for Digital TV reduces to zero the payment of patents or use of trademarks and supply of technology and provision of technical assistance (Ministério da Economia, 2019, p. 36). Second, the Special Taxation Regime for Construction, Expansion, Renovation or Modernization of Soccer Stadiums promotes the suspension of the PIS/COFINS tax levied on the import and acquisition of building materials, which eventually becomes a zero tax rate (Ministério da Economia, 2019, p. 61). Last, while the Agribusiness Letter of Credit (LCA) is a popular category of trade investment, this governmental program exempts investors of LCA from withholding income tax and in the declaration [to the Fiscal Receipt] of annual financial adjustment.(Ministério da Economia, 2019, p. 136).

Showcasing these privileged fields, I intend to prompt the reader to question whether it is fair to invest in them rather than in pungent social problems such as education, health, and poverty. Depicting this scenario, the analysis eventually shifts to testing the efficiency of those programs (Ministério da Economia, 2020), for if they did work in its plenitude, the people might somehow be satisfied with the amount of taxes paid, even if it is indirect and regressive (Pessôa & Pessôa, 2020). Meanwhile, research promoted by the Brazilian Senate (2018) shows that per year, the money invested in social security loses R$428 billion. In comparison, tax expenditures like the aforementioned increased from R$77 billion in 2006 to almost R$2.3 trillion in 2019 (Pessôa & Pessôa, 2020). When the State, an organ supposed to work with clear priorities, chooses to modernize soccer stadiums over investing in social security programs to feed, teach, assure health, and secure the poor, it is not functioning. Even if those projects paid off in their internal purposes, when Brazil thinks that the Agribusiness investors need more credit than those who struggle to feed every day, it means that it needs to fix its priorities.

It is essential to state, however, that this tendency comes from the Government’s philosophy: Necropolitics (meaning a power determines who gets to live and die) was the name given to the Economy Minister Paulo Guedes’ policy-making. It refers to an essential point, if not the main, of the socioeconomic discussion: how policies affect people’s lives. More than poverty-boosting, Guedes’ administration too often seems Malthusian (in the sense of valuing resources over humanity). These titles correspond to one quote from him that reflects his policy: "Everyone wants to live 100 years, 120, 130 (years)," he said. For Guedes, "there is no investment capacity for the State to be able to keep up" with the growing search for medical care. (Costa, 2021). It is also nothing if not elitist. At an interview at Folha de São Paulo, he declared, “The rich capitalize on their resources. The poor consume everything” (Ramos, 2020). In this fashion, the exponentially-increasing elitism amongst the Economy Ministry has an overwhelmingly negative impact on Brazil’s political struggle to combat inequalities.

V. Reform Proposals

In response to the 2015’s Duck Movement and so many other popular uprisings, numerous reform proposals have emerged. The three main projects in discussion are PEC 45/2019, PEC 110/2019, and Law Project 3887/2020. The first two projects attempt to unify at the Mist Commission of the Tributary Reform, formed by 25 deputies and 25 senators. They propose the unification of many taxes into one, called Tax on Goods and Services (IBS), taking as a model an international trend called Tax over Aggregated Value (IVA). The difference between PEC 45 and PEC 110 is in the number of taxes being unified: five in the former and nine in the latter. However, PL 3887 differs: it creates Contribution over Goods and Services (CBS), which takes the place of two key taxes, PIS/Pasep and Cofins, in a much more abrupt way than in the PECs. It proposes a very minimal tax for businesses (12%, which is not even half of what workers pay), and an even worse tax for financial institutions (5.9%) (Portal da Indústria; Pupo & Brant, 2021; Câmara dos Deputados, 2019; Câmara dos Deputados, 2020; Senado Federal, 2019). Overall, the PECs offer unification that would alleviate the National Budget and tax dividends and investments. But at what cost? Unifying the taxes over goods and services, Brazil’s indirectness would be thriving more than ever. In addition, the taxes it proposes over businesses and investments are minimal compared to the people’s taxes, and considering the indirect way it leads Brazil to, it does not make meaningful progress towards progressiveness. These proposals would make a fiscally fairer Brazil even more distant.

VI. Principiological Proposals of Tax Reform

Yet, recalling Júnior and Santos (2020)’s basing principles, I affirm that there is hope for Brazilian society to find equality through tax reforms. In 2017, a study made by IPEA researcher Marcelo Medeiros proved that if the government would tax dividends at only 15%, that would be enough to pay half of the external debt at the time — bringing R$53,000,000 to the public safes. The disturbing part is that to make the system proportional, the tax should raise to 27.5%. To make it progressive, I propose the tax to raise according to the Laffer curve study (Laffer, 2004), and to increase until the revenue maximizing point — one that would be reserved for the wealthiest, and grow accordingly to the person’s income. This shall be combined with the fixed taxation of fortunes, as described by Sachsida (2017).

As included in previous sections’ discussions, another pressing privilege that was made possible by the rich’s influence over political scenarios is the reduced aliquot over an inheritance. The vast majority of countries in the OECD have massive taxes on inheritance, something that, as demonstrated previously by Fernandes (2021), would suit Brazil’s revenue demands well. Compared to South Korea’s 50%, France’s 45%, and the United States and the United Kingdom’s 30%, Brazil’s taxation over the inherited wealth is undermost: 8% (Asen, 2020). Analyzing Brazil’s international image and necessity for arrecadation, as well as profoundly recalling Fernandes (2021) and Sachsida (2017)’s works, I propose ITCMD to raise significantly and to have its tax rate fixed, as well as recommend the project of taxing over financial transactions to be revisited by the Congress on the light of Sachsida’s caveat. Hereby, I also acknowledge room for quantitative research on determining the numbers that are more suitable, under the condition of maintaining the country’s overall progressiveness.

Perhaps the most alarming perspective one can take onto the Brazilian case is the comparative, which makes clear Brazil’s need for a comprehensive reform that is aligned with international trends that work. Internationally, Brazil is quite behind the UN-inspired social-democratic trends. Compared to the United States, Brazil has different struggles and these aspects reveal its backwardness (Cooper et al., 2015). On the other hand, in the Latin American scenario, the Brazilian picture is even more fragmented, tending to stay behind most of its neighbors’ in terms of quality of economic policies, but ahead of some in terms of production, exportation, and even taxes’ compensation (Atria et al., 2019; Lustig, 2017).

Considering this ambiguous comparative scenario, Brazil should base its policies on OECD’s trends, ones that have worked before on countries’ journeys to progressiveness (Junior, 2021). Lastly, having considered the III section of this article, I propose two new approaches: the close oversight of federal investments and the focus on inclusive social security programs. The former aims to avoid such ineffective tax expenditures, and should be led by a new branch of the Office of the Public Prosecutor's Office, from the Public Ministry (MP). The latter’s purpose is to aid poverty from its root, giving lower classes the opportunity to thrive in society and contribute as much as they increasingly can — this posture is efficient because it complies with the State’s essential role, to secure the people. Each of these measures will only be possible accompanied by the other, and only the general economic progressiveness within the taxing system can make them viable.

Summary

This work combines literature from academic articles, governmental and non-governmental reports, and news articles to claim that with inefficient revenue redistribution and a regressive taxation system that is unconstitutional, Brazil’s economy ministry privileges the country’s upper class by conceding them exaggerated tax incentives. In addition, granting subsidies to non-priority sectors and investing in inefficient programs, ignores the lower class’ need for structured social policies and serves as a vector for income inequality.

Indeed, the non-taxation of dividends, investments, great fortunes, and inheritance are at an attempt of being changed by three deeply flawed projects being processed in Brazil’s Congress as a reflex of the extensive popular dissatisfaction. Implementing indirect taxing, the projects make minimal progress towards progressiveness in Brazil’s currently proportional tax system. Furthermore, whilst non-social money (the aforementioned tax expenditures) increases and social applications of public revenue (such as social security) have been decreasing exponentially, this article finds that a clear confusion of principles is occurring. And this confusion’s costs to the population rely on the Economy Ministry’s positioning, which is elitist, Malthusian, and necropolitical.

Therefore, this study provides evidence to support a reform that compromises with the following factors: following OECD's international trends instead of being a dreadful exception in a comparative scenario, taxing dividends more substantially than income, taxing inheritance and great fortunes with higher and more fix aliquots, supervising closely the subsidies' programs efficacy and social character alongside the rich’s influence over politics, investing in social security policies instead of secondary public sectors, and finally tending to an overall economically progressive Brazil.

Conclusion

This research paper aims to inspire the thought that by reforming both the tax policies and the political management of the economy, people will be able to direct their nation to progressiveness and therefore more economic equity, decent work, and economic growth. Finally, it is vital to reinforce the human side to the economy: politics. What this article reminds academia of is that Brazilian democracy is feeble, as recent as 1980. Guedes’ policy — necropolitical, Malthusian, and elitist — is one more portrait of the nations’ backwardness. This does not reflect on the national potential, however. Regardless of how late Brazil is in the aforementioned factors, the evidence showcased in this article suggests that there is still hope for Brazil’s working class to turn around this characteristic state of privilege and to claim their constitutional right for the payment of the upper classes’ social-tributary debt.

References

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https://taxfoundation.org/dividend-tax-rates-europe-2020/ 

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