Who's afraid of tax reform?


Author: João Mellão Neto

Source: O Estado de S. Paulo, 14/03/2008

This statement seems obvious, but everyone forgets it when it comes to tax reform. The State, in the minds of many, is an imaginary being thanks to which it is possible for everyone to live at someone's expense. Nothing more fair, at least from the point of view of each one. But the State does not produce wealth, except for the few and poorly managed companies that it still controls. Furthermore, his function is exclusively redistributive: by collecting taxes, fees and "contributions" he accumulates resources that, at least theoretically, he spends on works and services aimed at the common good. It turns out, in the end, both sides are dissatisfied. Whoever paid understands that he paid too much, whoever received believes that he received too little.

For a government official, the most thankless task is to promote effective change in this complex system of resource extraction, on the one hand, and allocation of funds, on the other. There are no people in the world who claim to be fully satisfied with their fiscal and tax system. There is no record in the history of any group that founded a “Sociedade dos Amigos do Fisco” or something similar. Taxes, as the name says, are taxes. The State creates them and society has an obligation to pay them. Ideally, the system should be as neutral as possible: nobody pays more than they can, nobody gets more than they should. In practice, this is almost impossible. The segments of society that enjoy a better relationship with power always create devices to pay too little or receive too much. And the opposite occurs with segments that do not have this privileged relationship. Tinkering with this tangled complex, as has already been said, is a laborious and not rewarding mission. As bad as a nation's tax system is, it at least enjoys the benefit of inertia. It is a sleeping tiger. Nudge the beast and nobody knows what can happen ...

To better situate readers, it is worth saying that tax reforms are always constitutional reforms and, therefore, follow their own legislative rite: the President of the Republic sends to Congress his constitutional reform project (PEC), which, for real, must be approved by three fifths of the members of each Legislative House, in two independent votes in each one. Generally, PECs begin their process through the Chamber of Deputies.

Once the PEC is received by the Mayor, the latter immediately creates a special commission to give an opinion on it. These commissions are composed of members from all parties, in proportion to their representation in the House. I had the opportunity to be president of a special commission, that of Administrative Reform, at the beginning of the government of Fernando Henrique Cardoso. My commission was not the only one. At the same time, several were created to meet the “reformist urge of our sociologist president. One of them, precisely, dealt with the notorious tax reform and met in the room next to mine. Again for the sake of clarity, it is worth remembering that each committee has a parliamentarian who fulfills the role of rapporteur. Its function is to collect the proposed amendments that are made by the deputies in order to change or improve the text coming from the Plateau. With these amendments in place and hearing the different opinions of the committee members, the rapporteur prepares his opinion, which is submitted to the committee's vote. If approved, the text goes on to vote by the plenary - all members of the House.

Well, my commission was inaugurated on the same date that the tax reform began. The rapporteur of the neighboring commission was deputy Mussa Demes, a Piauí citizen, an experienced tax attorney and endowed with Job's patience. The Administrative Reform Commission ended its work 14 months later. That of the Tax Reform to date awaits a conclusive opinion, since no consensus has been reached as to the text of its preamble.

I personally do not believe in tax reforms in democracies and under the sign of peace. As it is about money, everyone participates without willingness to give in to anything and determined to win in everything. The game is typically zero-sum: in order for one to win it is necessary for another to lose in the same proportion. And all players have equal powers. There is no arbitrator to settle disputes. It is not necessary to be knowledgeable about Game Theory (Neumann-Morgenstern, 1944) to intuit that a happy or at least reasonable end is impossible. If producer states win, consumer states naturally lose. If the Union comes out with advantages, States and municipalities lose out. The solution that faces the least resistance is one in which everyone, in one way or another, wins. As the government can even manufacture money - although it does not produce wealth -, it opts to increase the share of all, conveniently omitting what are the sources of these extra resources. The result, in the short term, is that everyone leaves happy and satisfied. In the medium term, as the government is spending more than it collects, uncomfortable inflation arises, which, among other things, disorganizes the economy. In the long run, it is chaos. Nobody else invests, because it is impossible to calculate the rate of return, nobody else employs, because it is not convenient to assume higher costs in times of uncertainty. And the economy is completely stagnant.

May God be different this time. But historical experience tells us that promoting tax reforms is the same as climbing on a lion's back. Assembling is easy. It is really difficult to dismantle later ...

João Mellão Neto, journalist, state deputy, was federal deputy, secretary and minister of state