The Politics And Programme Of The First International - Part 6

7.
Direct and indirect taxation

(a) No modification of the form of taxation can produce any important change in the relations of labour and capital.

(b) Nevertheless, having to choose between two systems of taxation, we recommend the total abolition of indirect taxes, and the general substitution of direct taxes. [In Marx's rough manuscript, French and German texts are: "because direct taxes are cheaper to collect and do not interfere with production".]

Because indirect taxes enhance the prices of commodities, the tradesmen adding to those prices not only the amount of the indirect taxes, but the interest and profit upon the capital advanced in their payment.

Because indirect taxes conceal from an individual what he is paying to the state, whereas a direct tax is undisguised, unsophisticated, and not to be misunderstood by the meanest capacity. Direct taxation prompts therefore every individual to control the governing powers while indirect taxation destroys all tendency to self-government.

The shortness of this section is symptomatic of the importance Marx placed on the role of taxation. In fact, its role or lack of it is set out in the opening statement, that it could provide no important change in the relationship of Labour and Capital. What is perhaps even more significant, and demonstrates the difference between Marx's attitude to the Capitalist State, and that of much of the Labour Movement, including those who call themselves Marxist, over the last 100 years, is the reasons he gives for favouring “direct taxes” i.e. taxes applied directly to individuals, rather than individuals actions. For the last 100 years, the Left has raised basically the same demand contained in the radical Liberal demands of the Communist Manifesto for “A heavy progressive or graduated income tax.” The Left has raised this demand in the context both of a concept of redistributing income from the rich to the working-class, and also for practical purposes of financing an ever expanding Capitalist State, whose growth has been associated, in some strange sense, as being the equivalent with a development towards Socialism. Despite the fact that this latter concept, was most closely associated with the ideas of Edouard Bernstein and the Revisionists, who thought they saw a gradual evolution by these means, and the transformations taking place within Capital itself, towards Socialism, it has been effectively adopted by other “Marxists”, including those who claim to be “revolutionary Marxists” whose whole tradition arises from the opposition to Bernstein, and revisionism.

Marx has nothing in common with such an approach. He begins by pointing out that whatever form of taxation is adopted it can have no effect on the relations between Labour and Capital. Why? Essentially, for the reasons already outlined in his argument against Weston about why Labour cannot improve its position vis a vis Capital simply by wages struggle. A Tax, which raised workers wages, by some form of transfer from Capital, would be no different than if workers were to raise wages at the expense of Capital. Capital would simply respond by introducing speed-up, finding ways of reducing the value of Labour Power, introducing labour-saving machinery, and in a globalised economy, simply moving its operations elsewhere. Alternatively, Capitalists could simply reduce their future investments, and sit on their cash. The consequence would be that the demand for Labour Power would fall, and with it wages. Workers would be back to square one or worse. The distribution of income between workers and Capitalists was not accidental, and could not be taken in its own right independently of the mode of production i.e. the fact that a small number of people owned the means of production, whilst the vast majority didn't, and had to sell their Labour Power.
Setting himself firmly against such an approach, in the Critique of the Gotha Programme, Marx wrote,

“Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labour power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one. Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?”

Marx here does not even advocate an Income Tax, but only a Direct Tax – which could just as easily by a Poll Tax. Flowing from the above assessment, his reason for advocating Direct Taxes then has nothing to do with any idea of redistributing income from the rich to the workers. His reasons for advocating Direct Taxes are quite different, in fact more akin to those of the Taxpayers Alliance than of the Left. His arguments for Direct taxes as set out are:

1. Direct taxes are cheaper to collect.

2. Direct taxes do not interfere with production.

3. Because everyone can understand a Direct Tax

4. Everyone can see exactly how much they are being taxed (most people have no idea how much they pay in VAT, various Duties etc.)

5. Because of the above everyone will seek to minimise how much they are being taxed, they will minimise the size of the State.

6. Marx sees the minimisation of the size of the State as a good thing, because its growth “destroys all tendency to self-government.”

This same formulation was adopted in the Eisenach Programme with the only amendment being that rather than just specifiying a Direct Tax, it specified a Progressive Income Tax (i.e. an Income Tax that rose as Income rose, as opposed to a flat rate Income Tax), and was adopted by Marx and Engels when they helped write the Programme of the French Socialists. But, the fact that Marx saw nothing socialist in this demand, and nothing even that could redistribute income or wealth from Capital to Labour, was again demonstrated in the Critique of the Gotha programme, where he attacks such notions, and points out that all Taxation is nothing more than the means of financing the Government. He writes,

“That, in fact, by the word "state" is meant the government machine, or the state insofar as it forms a special organism separated from society through division of labour, is shown by the words "the German Workers' party demands as the economic basis of the state: a single progressive income tax", etc. Taxes are the economic basis of the government machinery and of nothing else. In the state of the future, existing in Switzerland, this demand has been pretty well fulfilled. Income tax presupposes various sources of income of the various social classes, and hence capitalist society. It is, therefore, nothing remarkable that the Liverpool financial reformers — bourgeois headed by Gladstone's brother — are putting forward the same demand as the program.”

Marx is clear, Economism, the struggle of workers against Capital for immediate, but necessarily temporary improvements of their condition, whether those improvements be as a result of industrial struggle to raise wages and conditions, or more general reforms can never provide any solution for the workers. At most they can act as a defensive response, and in doing so can create the kinds of organisation through which workers can develop the means of really solving their problems, the development of workers property, and the actual transfer of the existing means of production into their own hands.

The other reason that Marx argued that the form of tax could not make any difference in the relations between Capital and Labour was that he argued that Tax is a deduction from Surplus Value, as is Rent and Interest. The argument is effectively the other side of what he was saying to Weston. If we take his formula for Capital as a whole C + V + S = K, then at any one time the V, the Value of Labour Power is given as with any other commodity, by the Labour-time necessary for its production, in other words the labour-time required to produce that bundle of Use Values that go to reproduce the working class. Marx's argument against Weston, and the economists and redistributionists is that if Wages rise above V, then Capital will act to reduce it back to the value of Labour Power. The argument becomes clear if we put numbers to the above.

C 200 + V400 + S400 = K1000.

Suppose VAT is introduced at a rate on all wage goods. The price of wage goods then rises, but workers still need that bundle of Use Values, if Labour-Power is to continue to be reproduced as before. If you build a car with inferior parts compared to those used previously the car itself will be inferior. If you build workers with inferior (or fewer inputs) than previously then those workers, and the Labour Power they provide will also be inferior. The labour Power of workers who are healthy, well-fed, and well educated is both quantitatively, and qualitatively different from that provided by workers who are unhealthy, under-fed, and ill-educated. The former is qualitatively greater because even undertaking the same type of work, they will be able to work harder, faster, more efficiently and so on. In any given period of time they will produce more Use Values. It is qualitative greater, because they will be able to engage in types of skilled and complex work that the latter could not do. As complex Labour, one hour's work of the former would then be worth several hours work of the latter. If Capital does not want to see its Surplus Value fall as a result of the deterioration of its workers then the bundle of wage goods has to remain the same.

The consequence is then C200 + (V400 +T100) + S300 = K1000.

The result of the VAT is that Surplus Value falls, because the total value produced cannot change, and S is a derivative of the new value created by workers, minus the costs of reproducing that Labour-Power. In other words it could have been written,
C200 + V400 + (S400-T100) = K1000.

The same applies if a 25% Income Tax is imposed. In order to buy the same bundle of Use Values, workers would need to raise V, by 25%, so S would fall proportionately again. With either the Direct or Indirect Tax, workers remain in exactly the same position they started in. S falls by 25%, but T arises as a result. Instead, of being in the hands of Capitalists individually in the form of S, it now exists in the hands of Capitalist collectively, in the hands of their state. The relation between Capital and Labour is unchanged.

The situation is only modified where the Tax goes to cover the cost of something like Socialised Education or Healthcare. If, say education is taken as being one of those Use Values that comprises the bundle that reproduces Labour Power, then all that changes here is that workers buy this Use Value from the State in the form of Taxation rather than from Capital in the form of a price paid out of their wages. One of the reasons that Capital introduced socialised Education and Healthcare, was precisely because these Use Values, are important for it in the reproduction of the kind of Labour-power it requires for a modern economy. By socialising these Use Values, it ensures that provision is made to the level it requires, and workers devote the proportion of their Wages, it requires them to, in order that the provision made is guaranteed demand. To the extent that these payments are made via an Income Tax, whereby higher paid workers pay more than lower paid workers, whilst the lower paid workers (by and large) receive a similar amount of Use Value, the consequence is only that Capital has to pay a proportionately higher price for the higher paid Labour-Power, than it would have had to do, and a proportionately lower-price for lower-paid, Labour-power than it would have to have done had those workers bought those Use Values directly out of Wages. Overall, the relation between Capital and Labour is unchanged.