Tax fabulations

By ETCO
24/02/2015
Everardo Maciel, former Federal Revenue Secretary and ETCO Advisor
Everardo Maciel, former Federal Revenue Secretary and ETCO Advisor

The usual complexity of the tributes also contains an aura of mysteries, which, in turn, constitute a generous territory for fabulations.

Thomas Piketty, a French economist, soon became a media star, due to the resounding editorial success of “Capital in the XNUMXst Century”.

It is an analysis of income and inequality in contemporary society, full of opportune literary references and founded on a formidable collection of statistics and historical facts.

The deserved success will, ironically, contribute to the increase of inequalities, due to the fortune that the author will accumulate with conferences and book sales.

The fascination with media gestures is perhaps what explains the author's refusal to “Legion of Honor”, ​​a commendation granted by the French government, under the argument that honor cannot be bestowed by the State.

Less, Piketty. The title of the commendation reproduces only a consecrated Gallic tradition. Were it not for the State, who should deliver the commendation?

What is most impressive about Piketty, however, is his insistence on proposing, as a remedy for inequalities, a confiscatory taxation of capital rents and inheritances, on a world scale.

North Korea's and the Islamic State's comments on the proposal are not known, but among experts, except those linked to blind ideological commitments, there was a unanimous rejection, as it is an insubstantial and unviable thesis.

Regarding the proposal, the comment made by Wolfgang Pauli (1900-1958), an Austrian who was awarded the Nobel Prize in Physics, when compelling a work by a colleague: “it is not even wrong”.

To placate criticism, Piketty reacts by stating that the proposals are only intended to provoke debate. It could have been more parsimonious.

In Piketty's wake, from time to time, theses emerge that aim to mitigate the problem of inequality in Brazil through taxes.

The authors of these theses, in fact, overestimate the power of taxes and underestimate the imagination of tax planners, in a globalized world, with great mobility of people, companies and capital.

Taxes, at most, may have an incidental impact on inequalities, the understanding of which involves numerous other variables, such as education, health, social protection, level of economic activity, etc.

Furthermore, it is necessary to investigate the foundations of the theses, often based on clichés that result in naive (axiomatic) theories, which are essentially committed to premises and consistency, but not necessarily to reality.

A recurring cliché is the assumption that the tax systems in which consumption taxation prevails over income are regressive (unfair).

This hypothesis may be true in tax systems where consumption admits one or a few rates and the taxation of income is effectively progressive, considering its rates, calculation basis and exemptions.

Denied the premises, any assessment of the tax justice of a tax system can only be made with an analysis of the specific situation.

In Brazil, for example, consumption admits overlapping taxes (ICMS and IPI), each with very peculiar characteristics, not to mention CIDE-Combustíveis.

The ICMS that originally intended to be the second experience, at the international level, of value added tax ended up being a sui generis tax, in an identity crisis. Aside from that, it is presumed to have more than 40 effective rates.

The IPI is in no way comparable to excise taxes, generally levied on few products, such as beverages, tobacco and fuels.

There are, therefore, no reasons for, a priori, to conclude that consumption taxation in Brazil is regressive. In fact, progressive consumption taxation has long been discussed.

It is also common to include PIS and Cofins in the taxation of consumption. Such classification is an amazing eccentricity, since the basis for calculating these contributions, in the cumulative regime, is identical to that of income tax and, in the non-cumulative regime, it approximates income tax, in no way resembling the IPI or ICMS.

Strictly speaking, there has never been an assessment of tax justice in the Brazilian tax system, without clichés, let alone its repercussions on social inequities.

 

Everardo Maciel is a former Federal Revenue Secretary and ETCO Advisor