The burden of taxation

[Young Master Smeet]

http://blogs.lse.ac.uk/businessreview/2017/11/15/economists-used-to-think-that-it-doesnt-matter-whom-you-tax-but-it-does/?platform=hootsuite

The paper appears to agree with us that the burden of taxation doesn't really fall on the workers, but it does suggest some interesting ideological effects: that people feel they are paying tax if they are told they are, and thus support less government spending when they feel they will be taxed less:

Quote:

In our experiment, we organise a labour market with employers and employees. Employees supply labour to do a task for which the employer pays them. Employers make money based on the tasks successfully finished by the employees. We tax both sides, but vary the split of taxes between employer and employee, while keeping both total labour costs and net income constant. This experimental control is ideal to study the differential reactions to the taxes and to investigate the psychological mechanisms that might cause these reactions.

Their experience of people not appreciating the difference between gross and net wages is interesting, though aggregation over a bigger economy would see more people responding to the net (if only in marginal ways).

The authors can't find a policy decisions to apply these findings: but we can.  taxes are ideological, they are a tool of control, not of funding the government.

[Brian]

Young Master Smeet wrote:

http://blogs.lse.ac.uk/businessreview/2017/11/15/economists-used-to-think-that-it-doesnt-matter-whom-you-tax-but-it-does/?platform=hootsuiteThe paper appears to agree with us that the burden of taxation doesn't really fall on the workers, but it does suggest some interesting ideological effects: that people feel they are paying tax if they are told they are, and thus support less government spending when they feel they will be taxed less:

Quote:

In our experiment, we organise a labour market with employers and employees. Employees supply labour to do a task for which the employer pays them. Employers make money based on the tasks successfully finished by the employees. We tax both sides, but vary the split of taxes between employer and employee, while keeping both total labour costs and net income constant. This experimental control is ideal to study the differential reactions to the taxes and to investigate the psychological mechanisms that might cause these reactions.

Their experience of people not appreciating the difference between gross and net wages is interesting, though aggregation over a bigger economy would see more people responding to the net (if only in marginal ways).The authors can't find a policy decisions to apply these findings: but we can.  taxes are ideological, they are a tool of control, not of funding the government.

So governments are not funded through taxation?  So where in fact does their funding come from?

[Young Master Smeet]

The capitalist class pay for it (often through lending), but the tool is for ideological control, and then funding.

[Anonymous]

So before the Second Great War when few workers 'paid' income tax, the capitalist class weren't ideologically dominant? They were. So why set up a complicated, expensive pseudo-taxation system? I guess one more item in the ideological toolbox doesn't hurt.

[Anonymous]

Roosevelt wanted 100% taxation on the capitalist class, but they ended up paying 94%- 70% to finance the war and to finance the construction of superstructure, and to turn the state into the larger employment corporation, but despite that law they had many ways to pay less taxes to the state. It was state capitalism like in the Soviet Union.Saying that the workers are the taxpayers have convenient consequences for the capitalist class, keep  the workers divided against each other, and cover the real conception that they are the real owners and bosses of the state, and that the presidents and minister represent them.The left wingers and Leninists called themselves Marxists, but they do not understand the concept of taxation and the concept of wages, and surpus value, and they continue saying that the burden of taxation falls on the working class. Wages are just the necessary means to keep the slave alive and continue producing more profits, and taxation comes from the capialist surplus value, and state from the bottom to the top or viceversa is totally  financed with surplus value, workers do not finance the state, it is not our state,it  is their state

[Anonymous]

Bob Andrews wrote:

So before the Second Great War when few workers 'paid' income tax, the capitalist class weren't ideologically dominant? They were. So why set up a complicated, expensive pseudo-taxation system? I guess one more item in the ideological toolbox doesn't hurt.

How do you think that Donald Trump avoid paying taxes for several years ? Using the same complicated tax system which permits him and his corporation to avoid paying taxes. The thing is that with the new taxation law that will be implemented in the USA many foreign countries are offering o% taxation on the capitalist investment which means that many capitalist will invest their money in those countries, it is much better than the Panama Papers and the Paradise papers. Before the WWI there was not tax withhold for the workers in several places,  but the workers were producing profits and surplus value and taxation on the capitalist class was between 25% and 63%

[ALB]

Yes, it is interesting how they start from the same assumption we make that what matters are net wages and that, in the end, taxes on wages are paid by the employer:

Quote:

In most countries employers and employees both contribute to the taxes (or social security contributions) levied on labour. Employers pay taxes on top of the wage they transfer to employees and employees pay income taxes on the money they receive from employers. For many decades, economists thought that it should not matter who pays. Employers were thought to care only about total labour costs (gross wage paid plus employer taxes). Employees were thought to care only about their net wage (what’s left of the gross wage after income tax). The gross wage itself should be of interest to neither of them, so it should not matter who pays the taxes.

They don't seem to be challenging the argument that, in terms of what workers get, net wages are what's important. Their argument is about how the method of collecting taxes is perceived and how it affects people's political attitudes, but we have never denied this. Our position has only been that in the end taxation is a burden on the employing class, with direct taxes on wages being passed on to employers (and indirect taxes too in so far as they effect the overall cost of living).The ideological aspect (that taxing workers gross pay gets workers to think that they are part of a tax-paying community) is important, but there is another aspect why governments wanted to tax wages — to "redistribute poverty", to redistribute the total wages bill so that nobody gets too much, i.e gets paid for something they don't need, eg from single workers to married workers and from workers without children to workers with children. This too of course has an ideological effect — it gets workers arguing amongst themselves as to who deserves what — but I don't think this was the reason this was introduced.

[alanjjohnstone]

Came across this storyhttps://www.citylab.com/life/2017/11/the-extreme-amazon-bidder-just-got-real/546857/ 

Quote:

Chicago, which, under state law, could redirect between 50 and 100 percent of the income taxes incurred by Amazon employees right back to Amazon. ..These personal income tax diversion programs (nicknamed “paying taxes to the boss”) might seem tantamount to highway robbery, but they’re totally legal in 17 states, including Illinois. In fact, many states recently passed such laws allowing these offers in anticipation of just this sort of incentive package…“Diverting income tax revenues—or any tax revenues—directly to privately held corporations I think is a step away from democracy; a step away from responsible governance,” said Matt Gardner, senior fellow at the Institute of Taxation and Economic Policy. “And a step toward having unelected government officials like Jeff Bezos.”

[ALB]

Here's Marx's contribution to this discussion:

Marx wrote:

The level of wages expressed, not in terms of money, but in terms of the means of subsistence necessary to the working man, that is the level of real, not of nominal wages, depends on the relationship between demand and supply. An alteration in the mode of taxation may cause a momentary disturbance, but will not change anything in the long run. ('The Communism of the Rheinischer Beobachter, 1847]

Marx wrote:

If all taxes which bear on the working class were abolished root and branch, the necessary consequence would be the reduction of wages by the whole amount of taxes which today goes into them. Either the employers’ profit would rise as a direct consequence by the same quantity, or else no more than an alteration in the form of tax-collecting would have taken place. Instead of the present system, whereby the capitalists also advances, as part of the wage, what the worker has to pay, he [the capitalist] would no longer pay them in this roundabout way, but directly to the state (Moralising Criticism and Critical Morality, 1847).

[alanjjohnstone]

Quote:

An alteration in the mode of taxation may cause a momentary disturbance, but will notchange anything in the long run.

Now how do we determine the length of time of "the long run"? Isn't our argument that if taxation was raised on the working class wage, it would eventually be clawed back via the class struggle. But this is not an automatic process, is it? It depends as always on the respective strengths of the antagonists…we, the workers, and them, the bosses. Is it not equally true to say that imposing higher taxes on the working class, on the short run this benefits the capitalist class, and the longer they can subdue workers and their unions, the longer they maintain an advantage. For that time period, no matter how short, doesn't the working class bear the burden of taxation until it can recoup the real wage.  As workers exist from pay-packet to pay-packet is it not misleading to imply that they do not immediately suffer when higher taxes are imposed and that our message should always emphasise that only by defence of the real wage can we mitigate the level of taxation…if the State raises the tax…you strike for more pay. However, this is illegal, isn't it? No political strikes against the government are permitted, only so-called legitimate disputes with employers.  I think i said i have no sense for algebra…But if you cut the taxes the employers pay via corporation tax – the proportion of tax revenue going to the State via income tax is increased. And if they raise income tax to compensate for the low corporation tax, the bosses need not compensate its work-force would be a case i would make. Getting the full value of our labour-power is only by industrial muscle…But right now….does that exist? Or does it require to be re-built and that takes time.

[ALB]

Here is Marx's reply:

Marx wrote:

…although, as we have seen, the abolition of a tax does not benefit the worker, he is harmed by the introduction of any new tax so long as the minimum has not yet fallen to its lowest possible level, and in this case with all perturbations and difficulties of civil relations (Wages, notes written in 1847).

At that time Marx still thought that the tendency under capitalism was for wages to be driven down towards the minumum subsistence level ( which would be different in different countries and "determined on average by the price of the most indispensable provisions"). The argument still applies, though, when the value of labour power is higher than this (as it was even in his day for skilled workers) : wages tend to sell at their value; a tax on wages reduces the money workers have to less than the value of their labour power; so, there will be a tendency for money wages to rise by the amount of the tax as labour power (like other commodities) tends to exchange at its value.In this case, what Marx was saying was that if workers are being paid more than the value of their labour power then a tax on their wages could/would harm them as it would reduce the price of their labour power to its value. And he didn't expect this reduction to be automatic but that it would be accompanied by "perturbations and difficulties of civil relations", i.e in his day, in Germany, by bread riots, etc; in our day of course (and later in his day) by trade union action.The only defence against this is trade union action even if this is only a rearguard to slow down the reduction. If this can't be done by trade union action, then it certainly can't be done by political action to reverse the tax increase.

[alanjjohnstone]

And ALB, if there isn't that necessary trade union action…and it does seem like it is lacking…what can our fellow workers expect?…Isn't it our wages driven to subsistence levels…or at least for large sections of it, the unorganised and the weakly organised.So they on minimum/living wages because of the tax allowance system escape the burden of tax (correct and clarify me on that issue)…But what about those earning above that level. Does the wage of the skilled and organised really reflect its value and doesn't fall because of taxation. What i am trying to highlight is that in our customary responses to the question of taxation and where the burden lies, we do have a tendency to omit that class struggle MUST take place to counter the effect of high taxation. We cannot be seen or heard of offering a passive explanation …of workers being spectators…We tend to take it for granted that resistance is expected…but does the  "perturbations and difficulties of civil relations" occur on a collective class level…I think i am advocating that when we explain taxation, we must always add agitation for industrial action. 

[ALB]

alanjjohnstone wrote:

And ALB, if there isn't that necessary trade union action…and it does seem like it is lacking…what can our fellow workers expect?…Isn't it our wages driven to subsistence levels…or at least for large sections of it, the unorganised and the weakly organised.

Now it's Brother Fraser

alanjjohnstone wrote:

So they on minimum/living wages because of the tax allowance system escape the burden of tax (correct and clarify me on that issue)…

That's where the redistribution-of-poverty aspect of taxing wages comes in. Things are not so straightforward as in Marx's day.Here's is what we said in our 1943 pamphlet on Family Allowances:

Quote:

But the real issue is not that certain unscrupulous employers may seek to save out of wages amounts paid in Family Allowances, but that once it is established that the children (or some of the children) of the workers have been “provided for” by other means, the tendency will be for wage levels to sink to new standards which will not include the cost of maintaining such children.

and

Quote:

We would therefore ask the workers to examine the proposal for Family Allowances in the light of the foregoing remarks, bearing in mind that at best such a scheme can provide a slight and probably small improvement for a small section. Our advice to the workers is that they should not be fobbed off on the industrial field with small and doubtful gains for a comparatively small number, but that they should seize whatever opportunities may present themselves for winning improved conditions for all.

So we do link our theoretical analysis with calls for trade union action.

[alanjjohnstone]

And your quote seems to justify my concerns, ALB …that you cite a 1943 document (that is over 60 years ago)…which explains that our explanation calls for working class action on the industrial field.I think you have directed us to something that has to be addressed – we ceased repeating it when we should be constantly underlining it in our replies about taxes. This article is an example of what i fear misrepresents realityhttp://www.worldsocialism.org/spgb/education/depth-articles/state/taxation-myth

Quote:

When there are tax reductions this will be a major factor in stiffening the attitude of the employers. With tax increases, this stiffens the pressure of the workers for higher wages, especially when unemployment is low. It should be noted that this tendency for workers to receive the value of their labour power is helped by trade union action. …Of course, this will not happen automatically, but as a result of an economic tendency for the working class to receive the value of its labour power.

Can you understand why i consider this tone of passivity is mistaken ?.."helped"  and it is a "tendency" not that it is dependent upon and requires class struggle to achieve the value of our labour -power.Some consider that we are out of touch with the feelings and sentiments of our fellow-workers. I'm hoping that by re-focusing and re-emphasising the class conflict nature of our taxation analysis, this is somehow addressed. When taxes feature in the news and media, i think it not for us to claim it is nothing of our concern because in the long run, things will get sorted out but as that linked article does, we don't spell out how,  so i think we do have a class interest in tax rates on wages. 

[ALB]

The passage you quote is a precis of chapter 6 of our pamphlet The Market System Must Go ! Why Reformism Doesn't Work. Unfortunately it left out this passage:

Quote:

That taxation is an issue for the working class is a delusion. Of far more importance for living standards is whether capitalism is in the boom or slump phase of its economic cycle, and on how effective working class organisation in the trade unions is at securing wage rises and better working conditions.

This dates from 1997 not 1943.I only referred to our 1943 pamphlet on Family Allowances in the context of "family income supplement" (to be renamed "Working Family Payment" from March next year) and tax credits, being, besides a wage subsidy to empliers, "a redistribution of poverty" amongst the working class (but it also shows we have long refuted the Stalinist and Trotskyist calumny that we reject trade union action as reformist) because it advised the working class, as long as capitalism lasts, to undertake trade union action to raise wages generally rather than be diverted by reforms aimed to benefit only selected sections of the working class, eg those with two or more children.

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