In political folklore, the fates of George Bush (“read my lips: no new taxes”) and Margaret Thatcher (the poll tax, which she wanted to impose) were sealed by taxation issues. But the evidence on the electoral effects of tax reforms is unclear. Ahrens and Bandau (2024), in “The electoral consequences of taxation in OECD countries”, analyze the issue with data covering 30 OECD countries over 50 years (1970-2020). They conclude that the effects vary depending on the tax, whether direct or indirect. Changes in VAT, whether reducing or increasing rates, have no impact, while changes in personal income tax (IRPF) do.
But here the effects depend on the direction of the changes: tax increases have a negative impact, while cuts are electorally rewarded. The study also identifies an asymmetry: tax increases generate more intense reactions than cuts. In other words, losses in well-being have greater weight than gains of the same magnitude.
What can we expect from the electoral impact of tax reform (EC 132)? Probably very little. It is, above all, a reform of indirect taxes (merged into IBS and CBS) which has no visibility for voters due to the high complexity of the issue. And not just here in Brazil, as the authors show. The reform also includes direct: changes to the IRPF that are infraconstitutional in addition to IPVA (for boats, aircraft), IPTU and progressiveness in the transmission tax. The study cited shows that the electoral impact of taxing corporate income tax is null. It will probably be the same here. Many changes will take years to implement.
The invisibility of the IRPF among us is due to the fact that only a fraction of the electorate is affected and/or has an understanding of its technicalities. Which explains the usual lack of correction of the IRPF table; it is revenue generation with low political cost. The tax increase is almost invisible and overshadowed by issues such as salary increases.
Folha Mercado
The impact of the reform, however, is enhanced by reaching vocal categories of voters. Due to pejotization in the private sector, the IRPF is a tax concentrated on public employees. Along with sectors affected by the new IPVA and inheritance taxation, this group has an impact on opinion makers that is relevant and disproportionate to its size. But still small. But the reform creates winners who don't lose anything: voters who will have cashback. This matters politically.
Clarity of responsibility too. Who owns the renovation? As the authors show, it is difficult to claim credit for reforms in coalition governments.
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