Tax reform in the US and Brazil – 07/16/2023 – Marcus Melo

“Even an order of Trappist monks lobbied for special tax treatment.” Thus Jeffrey Birnbaum and Alan Murray describe the state of the pre-1986 American tax regime in “Showdown in Gucci Gulch: lawmakers, lobbyists, and the unlikely triumph of tax reform”. tax reform). The authors describe the labyrinth of change that no one expected to pass.

It was the historic income tax reform in the US, passed in the Reagan administration “against everything and everyone”. The lobbyists who flocked daily to the “Gucci Gulch”—the room in Congress where they draped their Gucci ties—were utterly skeptical. They were all taken by surprise. The reform eliminated thousands of exemptions, special regimes and deductions that had accumulated since 1913, when the tax was created.

The context was one of divided government: the Chamber of Deputies belonged to the Democratic opposition. Its president, Tip O’Neill, famous for “All politics is local” (all politics is local), reacted to the government’s proposal: “You know that this topic [tributário] it’s ours”. The Democrats dominated this agenda until Reagan started to defend lower taxes for all Americans, especially the “little guy”. He proposed the radical elimination of exemptions and deductions, and broadening the base. rates (from five to two) and a cut of the highest from 50% to 28%.A revolution that had an impact on the agenda at the international level.The ideas made the difference (see how here).

Despite the marked differences with the Brazilian reform, there are some similarities. The first is that the work is fundamentally congressional. Presidentialism in the two countries is radically different: in the US the Executive cannot even introduce bills. But Reagan played a crucial mobilizing role. The Executive’s lack of protagonism here is unprecedented in constitutional reforms, a pattern inaugurated with that of Social Security under Bolsonaro.

The level of cross-party consensus on the need for reform is also high in both cases. And this happened in the US when systemic dysfunctions became aberrant (although they focused on taxation of income versus consumption). As support for reform grew, “Democrats wanted to avoid blame for defeat and the Republican base wanted to double down on claiming credit,” according to Birnbaum and Murray.

The role of congressional leaders was important. House Democratic Leader Dan Rostenkowski is credited with winning party support for the reform, which passed unanimously in the key committee. It is ironic that ten years later he went to jail for corruption.

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