FRIEDRICH-EBERT-STIFTUNG – INEQUALITY IN BRAZIL CAPITAL OVER LABOUR, WHITE OVER BLACK: THE REGRESSIVE BRAZILIAN TAX SYSTEM REGRESSIVE TAXES TODAY AND 20 YEARS AGO The Brazilian tax system is regressive: 20 years ago, the poorest decile was subject to a tax rate of 32 per cent (28.3 per cent indirect and 3.7 per cent direct taxes), while the richest decile paid a tax rate of 22 per cent(10 per cent indirect and 12 per cent direct taxes)(POF 2002–2003, Sil­veira, 2010). The top 10 per cent at that time had an aver­age per capita income almost 90 times higher than the av­erage per capita income of the poorest decile. Given the extent of inequality before taxation, we can on­ly conclude that the progressivity of direct taxes is, at best, modest, especially if we consider their reduced share of overall tax revenues: 22.5 per cent, in contrast to a 27.7 per cent share in the case of payroll taxes and a 44 per cent share for indirect taxes in 2019(Cardoso et al., 2022). A tax reform confronting this is thus extremely urgent, especially with regard to personal income tax(IRPF) and its unex­plored potential, since Silveira(2010) estimates that taxes on motor vehicles(IPVA) and on the ownership of urban real estate properties(IPTU) are neutral or even regressive. There has been little change in the regressivity of the Bra­zilian tax system in the last decades(Silveira et al., 2022). In 2017–2018, the tax rate applied to the poorest decile was 26.4 per cent(23.4 per cent indirect taxes and 3.1 per cent direct taxes), in comparison to a tax rate of 19.2 per cent(8.6 per cent indirect taxes and 10.6 per cent direct taxes) for the top 10 per cent. Again, it is worth noting that the average per capita income of the richest decile is 36.4 times higher than the average per capita income of the poorest one, which underscores the limited progres­sivity of direct taxes. Still, in the case of personal income tax( Imposto sobre a Renda da Pessoa Física or IRPF), 80 per cent of it comes from the top 10 per cent, and 97 per cent from the top 30 per cent, enhancing its strate­gic importance in any future tax reform. The challenge when it comes to the redistributive capacity of the IRPF, however, is its regressive effect on the top 1 per cent who are subject to the tax, in comparison to the richest decile in general. Taking a closer look at the top 1 per cent, Gomes et al. (2022) find that black men at the top have a higher tax bur den than white men at the top 5 . Moreover, personal income tax in Brazil is regressive for white men at the top and pro­gressive for black men at the top 6 . Looking at the profiles of a“rich white person” and a“rich black person” in Brazil, it is easy to understand this discrepancy. Black men at the top are usually public servants, and therefore pay the tax rate as­sessed on labourers. White men at the top, on the other hand, are more frequently in the position of employers in social relations of production, which means they are usually remunerated and taxed as capital(Graph 7). In fact, Silveira(2010) had previously shown that direct tax­es placed a disproportionate burden on wage workers, in comparison to employers and own-account workers. Goto and Pires(2022) also present evidence in this regard: if we add payroll taxes up to the highest marginal tax rate for per­sonal income tax(IRPF), the tax rate rises from 27.5 per cent to 55.5 per cent 7 . This approach allows the authors to simu­late the tax rate of individuals with the same monthly in­come(R$ 10,000.00 8 ), but working in different occupa­tions, and they find that a formal employee and a public servant bear a tax burden of 42.3 per cent and 38.1 per cent, respectively, while a partner who provides services for a company operating under the presumptive income tax re­gime faces a tax burden of 16.3 per cent. This huge discrep­ancy has its roots not only in the exemption of profits and dividends distributed to individuals(Law nº 9.249/1995), but also in the“poorly calibrated parameters of simplified taxa­tion regimes for small and micro-enterprises” 9 (Orair, 2022, 5 Still, white people are responsible for most of the burden in connec­tion with direct taxes(Gomes et al., 2022), which is simply a conse­quence of the overrepresentation of white people at the top of dis­tribution structure. 6 White men among the top percentile have a tax rate of 8.8 per cent with regard to direct taxes, which is less than white men in the next lower top 9 per cent, who face a tax rate of 10.6 per cent, whereas black men among the top percentile bear a tax rate of 13.1 per cent, more than black men at the next lower top 9 per cent, who pay a tax rate of 10.7 per cent. This also seems to be the case for women, but the reduced size of the sample for black women does not allow one to draw any conclusions in this regard(Gomes et al., 2022). 7 It is worth noting that, while the highest IRPF marginal tax rate (27.5 per cent) is considerably lower than the OECD average(39.7 per cent), the tax rate including payroll taxes(55.5 per cent) is significantly higher than the OECD average(44.5 per cent)(Goto; Pires, 2022). 8 Around US$ 2,000.00 in September 2023. 9 Our translation. 8