Thursday, 5 January 2017

Tax - Part 1 of 2


  • Tax is a revenue obtained by the state.
  • A large proportion of “tax” is actually not tax at all, but merely a price paid for commodities and services provided by state capital.
  • Only that portion of revenue obtained by the state which covers the running costs of the apparatus of government itself is tax.
  • Only this portion that constitutes actual tax, is a deduction from surplus value.
  • That portion which constitutes the price of commodities and services provided by state capital, e.g. health and social care, education, etc. forms a necessary part of the cost of reproducing labour-power, and thereby constitutes a part of society's variable capital.

For Marx, tax is a revenue, just as wages, profit of enterprise, interest and rent are revenues. That is, it is a share of the new value created by labour during the year, and so a claim to an equivalent value of products from society's consumption fund. The value of society's total output divides into two components capital and revenue. The capital component replaces, on a like for like basis, the circulating constant capital, and wear and tear of fixed capital, consumed in the year's production. The revenue component comprises the new value created by labour during the year, the equivalent of National Income.

The revenue component, equal to this new value, created during the year, then divides into a series of separate revenues, the total of which is equal to National Income. In the same way that the use values that comprise the capital component (raw and auxiliary materials, worn out fixed capital) must be physically reproduced on a like for like basis, so too the use values required for the reproduction of labour-power (the necessary product) must be physically reproduced, on a like for like basis. Its in this sense that Marx, following the Physiocrats talks about the value of labour-power being fixed.

Therefore, the basic division of the newly created value is into this objectively determined necessary product, required for the reproduction of labour-power, and a surplus product, which remains after that has been accounted for.

As Marx describes, in Capital III and in Theories of Surplus Value, assuming no change in social productivity, the proportions of value – social labour-time – corresponding to these allocations of the social product, will not change. However, if, for example, social productivity rises, so that the use values required to reproduce labour-power can be produced more quickly, the amount of social labour-time required to produce the necessary product falls. The corollary is that the proportion of social labour-time left over as a surplus value rises, just as the proportion of the social product left over as a surplus product rises.

The converse is the case if social productivity were to fall for some reason. Similarly, if a rise in social productivity means that less social labour-time is required to reproduce the consumed constant capital – materials, wear and tear of fixed capital – whilst the labour-time required to reproduce labour-power remains constant, the result is a fall in the total value of output, because the value of constant capital is transferred to the value of output, and that value is determined by its current reproduction cost, not its historic cost.

These fundamental relations are important for understanding why productive-capital seeks to minimise the proportion of surplus value going to tax, or indeed to rent or interest.

The surplus value divides into profit of enterprise, rent interest and tax. As Marx sets out in Capital III, the more capital becomes socialised capital, rather than privately owned capital, the clearer becomes the distinction between the “labour of superintendence” performed by “functioning capitalists”, and for which wages are paid, out of variable capital, and profit, which for private capital often appears as inflated wages paid to the capitalist.

In its pure form, therefore, “profit of enterprise”, which appears to be a return to the specific abilities of the individual entrepreneur, is, in fact, the return to productive-capital, after the other revenues of rent, interest and tax have been deducted. It provides a fund for capital accumulation. The larger this portion of value, the greater the potential for capital accumulation. The smaller the portion of surplus value taken as rent, interest or tax, the larger the portion left over as profit of enterprise, available for accumulation.

Of course, as Marx describes, in Capital III, it is not the only fund available for such accumulation. If the recipients of rent, interest or even wages are able to set aside some of the revenue they receive, it can form a money hoard, which particularly with the development of credit, a developed banking system, and socialised capital, can then be pooled and turned into potential money-capital, which is then available for productive-capital to borrow for investment in additional productive capacity. But, precisely because productive-capital then has to borrow this money-capital, rather than having it immediately at its own disposal, it has to then pay the market price for the use value of this capital, i.e. its capacity to produce the average rate of profit. In other words, it has to pay the market rate of interest to borrow that capital, which in turn means a further deduction from its future profits.

The physical equivalent of the savings from those revenues – rent, interest, wages – is the portion of the total social product, which then is not consumed from the consumption fund, but is instead used for productive purposes, and is then purchased by the productive-capital for the purpose of capital accumulation.

That was why, as Marx describes, the interests of this productive-capital were represented by the Ricardians call for land to be nationalised. In that way, the portion of revenue accounted for by rent would go to the state, and in so far as the state obtained its revenue by that means, the less it would need to collect via tax, thereby reducing the portion of surplus value used for unproductive purposes, and increasing the proportion available for accumulation.

For Marx, the category of tax has an economically specific meaning, just as is the case with profit, interest, rent and wages. That meaning is not what might generally be considered tax in normal vocabulary. Just as the wages paid to a private capitalist might actually include a portion of profit, or the rent obtained by a landlord might also include a portion which is actually interest on capital, or “lease-fees”, which are actually portions of profit or wages, so what appear as taxes, collected by the state may not, economically speaking, be taxes at all.

For Marx, tax is revenue obtained by the state purely to cover the necessary cost of its own functioning. He describes that in “The Critique of the Gotha Programme”.

“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.”

(Part IV) 

Marx saw nothing progressive in high taxes – the term “single progressive income tax” above means only that it should be levied as a percentage of income rather than being a flat tax – levied by the state. Quite the contrary. As he sets out in the Programme of the First International, he saw a requirement of a taxation system being that it is transparent so that taxpayers could see how much the state was leeching from them, and thereby keep the imposition of those taxes to a minimum. This is still the same Marx who opposed the role of a strong Prussian state in his youth. High taxes strengthened the state, and increased its ability to impose itself upon society, whilst simultaneously undermining the tendency and ability of the workers to develop their own self-government.

As he put it,

“(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 reason for this is not only Marx's concern that workers develop their own self-government in opposition to state provision, but that Marx followed on from Ricardo in understanding that the necessity for social progress is the most rapid and effective development of the productive forces, because it is only by this means that society can create the basis for meeting all its basic needs, and to reduce the burden on labour, so that human beings can thereby liberate themselves from the realm of necessity.

“To assert, as sentimental opponents of Ricardo’s did, that production as such is not the object, is to forget that production for its own sake means nothing but the development of human productive forces, in other words the development of the richness of human nature as an end in itself. To oppose the welfare of the individual to this end, as Sismondi does, is to assert that the development of the species must be arrested in order to safeguard the welfare of the individual, so that, for instance, no war may be waged in which at all events some individuals perish. Sismondi is only right as against the economists who conceal or deny this contradiction.) Apart from the barrenness of such edifying reflections, they reveal a failure to understand the fact that, although at first the development of the capacities of the human species takes place at the cost of the majority of human individuals and even classes, in the end it breaks through this contradiction and coincides with the development of the individual; the higher development of individuality is thus only achieved by a historical process during which individuals are sacrificed for the interests of the species in the human kingdom, as in the animal and plant kingdoms, always assert themselves at the cost of the interests of individuals, because these interests of the species coincide only with the interests of certain individuals, and it is this coincidence which constitutes the strength of these privileged individuals.” 

(Theories of Surplus Value, Chapter 9)

Forward To Part 2


Jacob Richter said...

Should developed countries replace all their indirect taxes with a progressive annual consumption tax?

Worker movements in the 19th century opposed sales taxes, despite their greater collection efficiency, not because they can be regressive, but because they are not transparent. They conceal what taxpayers pay to the government, and thus they don't prompt them to regular tax oversight.

Then came the European welfare state. Economists concluded that even the most progressive of income taxation could collect only so much money. Collecting money from consumption as well as from labour income, savings, rental income, active business income, dividends, capital gains, and wealth was key. The question was how to collect money from consumption. Unfortunately, governments implemented high value-added taxes. Even the Eastern Bloc wasn't much different in this regard, as they resorted to turnover taxes.

In recent years, business columnists have suggested replacing the income tax with a progressive annual consumption tax. (And I oppose this replacement, of course.)

That said, what if a progressive annual consumption tax were to replace all indirect taxes? Taxpayers would file and pay this direct tax in a similar fashion to their income taxes, filing an annual tax return:

Boffy said...

Marxists should argue for scrapping all indirect taxation. There should be a high rate of income tax, with a high level of tax free income, at least higher than the level of Minimum Wage. But, I would reduce a large part of the Welfare budget, by introducing a high level of minimum wage, so as to scrap all in work benefits, such as tax Credit, Child Benefits, Housing Benefits etc.

If businesses cannot pay this level of Minimum Wage, and only exist on the basis of paying wages below the value of labour-power, subsidised by the state, they have no right being in business in the first place. Society does not owe these capitalists a living.

I have also set out that I would scrap Corporation Tax, because we want to see capital accumulation,and the reinvestment of profits. I would encourage that by shifting that tax burden on to a high rate of tax on unearned income, i.e. from dividends, rents, bond interest and so on. I would again protect small to medium savers by giving a generous allowance before such a tax was payable. I would also introduce a 10% p.a. Wealth Tax on all assets, wherever they are owned.

My views on other aspects of the welfare state have been set out before. I believe that healthcare, social care, and social insurance for sickness, and retirement should be in the hands of the workers themselves run via worked owned co-operatives. As set out in these posts on Tax, what is nominally deducted as tax to cover these expenses is really not tax, but a price of provision of these commodities.

Jacob Richter said...

Boffy, I posted my comment above because one of your past blogs on taxation suggested that Marx would've been OK with the tax politics of the likes of the Taxpayers Alliance:

Therefore, I suggested a stab at consumption and especially luxury taxation done right. Unlike Bernie Sanders, I am very much an "Eisenhower Socialist" on labour income tax policy, more than that on other income tax policies (Michael Hudson), and more than that when it comes to wealth tax policy (Thomas Piketty). However, I am also open to rational discussion about secondary taxation in other junctures of economic activity, such as consumption, so long as the taxation is direct.

As for the welfare state, the only "private" actor that I see fit to provide health care, social security, social care, etc. to the working class, in lieu of the public polity, is the party-movement itself (think CPSU providing Soviet social services instead of the Soviet state itself) - not cooperatives.