From Brazil to the US: The Motivations Behind the Move

Introduction

 Other income flows between the state and private sectors, you know? Not all state transfers lead to increased inequality, fam. Social assistance is like, super lit; it's all about giving money to those in need to combat poverty. And, guess what? It's extremely progressive and contributes to flipping the script on inequality (Hoffmann, 2009; Soares et al., 2009). However, they only account for about 1% of family income, so their impact on reducing inequality is negative 1%. That impact is so negligible that it is completely offset by unemployment insurance benefits and individual account withdrawals, which account for only 1% of total income. The Brazilian anti-poverty system, consisting of the Bolsa Família and the BPC, is only a small part of the state's regressive actions.

According to some studies, universalist policies make it cool to spend more on social issues, so countries with a welfare state centered on corporations are better at reducing inequality than those that only focus on social assistance (Korpi and Pal-me, 1998; Smeeding, 2005). According to a recent study of 28 OECD countries conducted around 2004, welfare states reduce inequality by an average of 35%. That's pretty dope, right? However, this estimate should be used with caution because it is based on a sequential accounting decomposition method, you know? Like, it's just the basic recalculation of inequality after we eliminate one source of income. When the same data is analyzed using factor decomposition methodology, the conclusion is that welfare benefits do not significantly reduce inequality (Fuest, Niehues, and Peichl, 2010; Lefebvre, 2007; Wang, Caminada, and Goudswaard, 2012). There are almost no receipts, so spending more money on social activities actually narrows the gap in Brazil. Expenditures for regressive pensions already account for one-fifth of all family income, a high proportion even when compared to OECD countries, but progressive targeted social assistance is not being increased in response and remains twenty times lower.

In the Brazilian case, it's easier to say that workers in the affluent sectors of the economy are like a super organized squad, far more powerful than the disorganized crew of people who could benefit from social assistance. 

Yo, just like in the past, the elites in all Latin American countries, including Brazil, used social security to flex on the military, public servants, and some unions in order to get them on board with their plans and gain support for the political stability vibe. The end result is a highly stratified social protection system in which, on one extreme, a large number of poor families can only rely on tiny social assistance benefits or minimum wage pensions when they retire, while only a few well-paid public servants have this insane income protection system.

So, it's not really about the policies, whether they're targeted or universal, you know? It's more about the power disparity between the wealthy and everyone else in a late-stage welfare state. That is what determines how much money is transferred to different social groups, regardless of the total amount spent. Behind the concentration of pensions are the insane vibes created by a once-lit corporatist welfare State. The Brazilian pension funds were completely established in the 1920s by various job groups, you know? It was kind of inspired by the Bismarckian welfare state vibes and stuff. During the 1960s, sectoral funds in the private sector were combined into a single large fund, but this had no effect on public sector pension funds, you know? Several attempts were made to bring the two subsystems together, but none were completely successful (Marques and Euzeby, 2005; Melo and Anastasia, 2005). 

It feels very different from what Korpi and Palme are talking about for OECD countries, don't you?

Taxes and pension contributions have the potential to completely change the regressive nature of social security, you know? It is similar to a phenomenon in OECD countries (Atkinson, 2003; Gottschalk and Smeeding, 1997). Direct taxation, particularly income taxes, is extremely progressive and contributes to a 10% reduction in the Gini coefficient. Lit! Brazil, on the other hand, still has a taxation scheme that is so old school, like from the mid 1960s, and it's like what you'd expect from semi-industrialized countries, with more than 80% of its taxes being indirect, and taxing real estate, property, and inheritances being almost non-existent. OMG, the tax burden is on production and consumption, so everyone has to pay their fair share, right? (Pintos Payeras, 2010). The issue isn't how much we're taxed, but rather what it's being used for, you know? Our study does not include individual data on indirect taxes, but if all taxes were as fair as income taxes, the country's inequality would be significantly lower, even if regressive State transfers remained constant.Only after recent reforms has convergence begun, but complete unification will take decades because the equalizing rules only apply to new hires in the public sector. Unless a lit mechanism is implemented, the inequality that is already perpetuated by a contributory system will persist until the demographics of the pension system change completely.