La cláusula penal pecuniaria en el derecho privado comparado

The often praised redistributive effect of tax systems has turned out to be somewhat disappointing in most countries. It would seem to make more sense to admit that when there is political will to redistribute, the most effective instrument is budgetary allocations, not the tax system.

The most repeated criticism of the federal single tax is that it would be regressive. This, however, is not the right argument to engage in, but rather whether this regressiveness might not also be much smaller and less harmful than the regressiveness of the taxes it proposes to replace.

The simulations Professor Marcos Cintra has published support this opinion, and recent studies published by the Federal Revenue and by other experts corroborate it. Furthermore, it has been empirically verified that, contrary to what had been thought, cumulative taxes on gross sales (the PIS/PASEP/Cofins taxes) demonstrated almost uniform and proportionally distributed incidence in all income brackets, whereas, the IPI, a selective value-added tax, rich with exemptions and differentiated rates, reveals an almost imperceptible progressiveness, as does the ICMS [a value-added state tax on circulation of goods].

The paper, “Progressiveness in consumption”, published by the Federal Revenue, after revealing evidence that cumulative taxes behave quite like an ideal VAT, from the perspective of their impact on consumers, states that the irregularities of the ICMS and the IPI, both in their legislative profile and in their practical

application, fall short of being the ideal VAT. The report concludes by suggesting that VAT supporters should increase their caution.190

This reinforces the thesis that moderate cumulative taxes that are simple, uniform, and easily audited are less distortionary than value-added taxes usually with higher rates, full of exemptions, and always subject to heavy tax avoidance.

For its part, Brazil’s income tax is falsely progressive. Its base is highly restricted and irregular, and the progressiveness of the tax rates by income brackets is heavily mitigated, and does not extend to capital income. Informal markets and tax avoidance predominate. Rent earners, entrepreneurs, and self-employed professionals are clearly favored when compared to wage earners. The theoretically fairest tax in Brazil is actually extremely inequitable. As we have stated earlier, it is actually a tax that is overwhelmingly levied on one restricted segment, middle class wage earners.

The choice of a comprehensive, regular, uniform base that is difficult to evade – by itself – reduces the regressiveness of the system. Replacement of the income tax with the proposed federal single tax would mean an immediate broadening of the taxpaying universe, from the fourteen who pay the personal income tax to the 27 who pay the CPMF.

By incorporating into the taxpaying population this vast segment of tax avoiders and those involved in the informal market not usually reached by the traditional tax systems, the pressure on actual taxpayers would both spread and be eased, providing a fairer profile to the fiscal system.

The remaining 180 million people, who do not have the possibility of making bank transactions, will not experience any direct effect of the proposed tax on their gross income. This, undeniably, is enough to make it clear that the system has some degree of progressiveness.

The nature of the system within which the federal single tax functions is compatible with policy measures that could be used to give the system an even stronger progressiveness. Even the authors of the proposal stress the ease of applying progressive rates as a function of transaction volume by a single accountholder within a given period of time. Another possibility would be for employers to assume the onus of the tax on paid wages, up to a given amount.

Lastly, we must address the objection concerning the possible allocative impact of the bank transaction tax on production chains. There is no way to avoid such an impact without sacrificing the proposed tax’s simplicity, which is its fundamental feature. The impact of the CPMF at the rate of 0.38% seems negligible, but it would become much more noticeable if the rate were ten times higher.

Professor Marcos Cintra’s studies aim to demonstrate that the resulting

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distortions would be less than those that stem from adoption of value-added taxes (ICMS + IPI + PIS/Cofins) with rates that add to 34% or more, as will be demonstrated ahead. It is almost intuitive that it would be practically impossible to avoid widespread evasion of a consumption tax of that magnitude. We hope that future empirical studies will be able to better illumine this aspect of the problem. WHO BENEFICITS?

The most obvious beneficiaries of the proposed federal single tax system are the habitual victims of our current non-comprehensive income tax. Middle and upper class wage earners in the formal economy would experience significant increases in disposable income.

A corollary would be that a vast segment of economic agents would be included in the taxpayer pool. As it is now, these agents manage to circumvent income tax, either because they are exempt or immune to them, or because they are in the informal economy, or even because they are tax avoiders or evaders. A Federal Revenue study using 1998 data reveals 16.9 million people exempt from income tax; and 11.7 million non-registered economic agents – all of which would be included in the pool of bank transaction taxpayers.

The bank transaction tax would decrease the current under-taxation of financial investments income and of capital gains. Profits and dividends would begin to be taxed upon distribution, but the personal income tax (IRPJ) would be abolished, resulting in a significant net gain for anyone who presently pays it and a loss for those who circumvented it, or who made use of irregular methods of profit distribution. Beneficiaries of income tax waivers, special regimes, and localized deductions would lose. For example, the tax advantage that loan capital has over own capital would disappear, with the dissolution of tax benefits for indebtedness.

The cost of labor would decrease significantly, with the discontinuation of employer social contributions and income tax withholding of wage earners. This effect will greatly enhance employability, as well as business operations, especially in labor-intensive industries. Business tax planning would be simplified and tax administration costs, whether personal or outsourced, would greatly decrease.

In addition to these general issues, the breakdown of the distribution of gains and losses is the most challenging issue to be discussed on tax reform, and deserves further research and analysis by all sectors involved.