Cooking the Books: The truth about tax

The burden of taxation does not rest on the shoulders of workers. Although taxes on wages appear to come out of wages, in reality taxes come out of profits. Workers should therefore ignore all the false promises and baloney about taxes that politicians use in order to try to win votes at election times, and concentrate their efforts instead on the class struggle, seeking to raise their wages and improve their living and working conditions. We often make this argument in the pages of this journal and, although the argument has its roots in the analysis of Ricardo and Marx, we stand alone in making it these days.

Not entirely alone, however. In his new book Business As Usual (Reacktion Books: 2011), reviewed in last month’s Socialist Standard, the Marxist analyst Paul Mattick makes the following argument.

“Tax money appears to be paid by everyone. But despite the appearance that business is undertaxed, only business actually pays taxes. To understand this, remember that the total income produced in a year is the money available for all purposes. Some of this money must go to replace producers’ goods used up in the previous year; some must go in the form of wages to buy consumer goods so that the labour force can reproduce itself; the rest appears as profit, interest, rent – and taxes. The money workers actually get is their ‘after tax’ income; from this perspective, tax increases on employee income are just a way of lowering wages. The money deducted from paycheques, as well as from dividends, capital gains and other forms of business income, could appear as business profits – which, let us remember, is basically the money generated by workers’ activity that they do not receive as wages – if it didn’t flow through paycheques (or other income) into government coffers” (page 81).

Our point precisely. As Mattick also points out in his book, while “neither economists nor businessmen have an adequate theoretical understanding of capitalism, the latter at least have a practical sense of how it works”. This applies in the case of tax. Listen carefully, and you can occasionally hear the representatives of the capitalist class admit to the truth of our stand on tax. In the Channel 4 documentary Britain’s Trillion Pound Horror Story (reviewed in the January 2011 Socialist Standard), to take just one recent example, the argument was made that taxes are bad because they raise the costs of labour. Very true: but the logical implication is that this is a problem for those who pay for labour – the capitalists – not for those obliged to sell it. Capitalists understand that raising taxes on wages will just put upward pressure on wages, raising the cost of labour for the capitalist. As we put it on our website:

“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. 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.”