Labour in its election messaging has been making a lot about billionaires not paying their taxes. Its a diversion. The real problems of capitalism do not reside in the fact that the rich do not pay their taxes, and would not go away if they did, which is the implication of Labour's message. For one thing, billionaires like Warren Buffett have openly said that people like him should pay more tax. He and Bill Gates hand over billions of dollars a year in funding to pay for programmes for some of the poorest people across the globe. They are committed to giving the greatest part of their fortunes away. No the problem with capitalism is not at all to do with rich people not paying their taxes. As Marx said more than 150 years ago, the inequality experienced under capitalism cannot be dealt with in the sphere of distribution, or redistribution, but only in the sphere of production, because distribution is itself a function of production. The problem is not that rich people don't pay their taxes, it is that the basis of capitalist productive and social relations ensures that the very rich get to receive and accumulate their billions in the first place.
"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 labor 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 - Critique Of The Gotha Programme)
Or as Marx puts it in the Programme written for the First International,
"No modification of the form of taxation can produce any important change in the relations of labour and capital."
In the early part of the 19th century, when private ownership of capital dominated, the owners of that productive-capital obtained profits, as a result of appropriating the surplus value produced by workers. The rate of surplus value, or degree that capital can exploit labour is not arbitrary, but as Marx analyses, depends upon objectively determinable material conditions. For example, workers must be able to reproduce their labour-power. Put another way, labour-power itself has a value. Wages are the phenomenal form of this value of labour-power. Capital can pay wages lower than this amount under certain conditions, just as the market price of any other commodity varies above and below its value, due to changes in supply and demand, but it can't continuously pay wages below this value without damaging the use value of the labour-power it requires, or finding that insufficient supplies of that labour-power are available.
Capital can reduce that value, as with any other commodity, by raising productivity, and so cheapening the commodities that workers require for their consumption - relative surplus value. But, big changes in that require technological revolutions, which capital only tends to bring about when shortages of labour supplies themselves have arisen causing wages to rise, and profits to fall, i.e. when there is an overproduction of capital. Capital can increase absolute surplus value by lengthening the working day, but there is a physical limit to the working-day, and beyond a certain point, labour-power wears out more quickly, pushing up the value of labour-power. The main way that capital can increase the amount of surplus value without increasing the rate of surplus value is by simply employing more labour.
If 1 worker produces £100 of surplus value per day, then 100 workers employed simultaneously will produce £10,000 of surplus value per day. That is why, when the Tories brag about the record numbers of workers employed, what they are really bragging about is the fact that an increased number of workers are producing even more profits for the capital that exploits their labour! And, of course, in real terms, it makes a huge difference whether a capitalist gets £100 of profit per day, or £10,000 of profit. The capitalist might need all of £100 of profit to cover their own consumption requirements, leaving them nothing to invest in additional capital. However, a capitalist who is provided with £10,000 of profit per day, by their workers, can increase their personal consumption tenfold to £1,000 per day, whilst still having £9,000 of profit to invest in additional capital. The more of this profit they then invest in additional capital, the more labour they can then employ, and the more profit this additional labour will produce for them. In addition, they may be able to use some of this profit to invest in additional machines so that their workers become more productive, producing even more profit for them.
Put another way, the first capitalist might pay no tax on their profits, whilst the latter might pay £1,000 of tax. Yet, the latter would still be able to spend £1,000 on their own consumption, and have £8,000 of profit left over, after tax, to invest in additional capital, so as to employ more labour, and produce even more profit.
As Marx puts it,
"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 labor, 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."
(Critique of The Gotha Programme)
What enabled the productive-capitalist to get rich was not that they didn't pay taxes, but that they owned capital, and from that ownership of capital they obtained profits, which enabled them to own even more capital from which to obtain even more profits, so as to own more capital, and so gain more profits and so on. In other words, the basis of the inequality is not at all a question of an unfair distribution of incomes that can be corrected by simply redistributing income via the tax system, which in itself is an expensive, wasteful and bureaucratic proposition. The basis of the inequality resides in the ownership of capital, and the social relations that arise from it. No amount of tinkering with taxes and benefits can change that, as Marx sets out. If all the billionaires and multimillionaires paid every last penny of tax they owe, it would not change the fundamental nature of capitalism. It would simply mean that, if anything, capital accumulation slowed somewhat, so that less labour was employed, wages would fall, as a result, profits would then rise as a result of the falling wages, and economic growth would be reduced.
By the end of the 19th century, this situation whereby capital is owned by private capitalists had come to an end as far as the characterisation of the economy was concerned. Millions of small private capitalists continued in existence owning corner shops, back street garages, and other such small businesses, but the economy, by this time, was characterised by large joint stock companies, where the capital was no longer owned by individuals, but had become socialised. In other words, the company itself was now a legal entity in its own right, and it was this company that owned the capital.
But, now, the former capitalists who had become removed from the actual business of business, just as the landowners had withdrawn from farming when the capitalist farmers took their place, had become merely owners of money-capital which they loaned out at interest. They loaned this money to the state, by buying its bonds, and receiving a regular amount of interest or coupon, on the money they had loaned; they loaned this money to companies themselves by buying their bonds and debentures, or else by buying its shares. As far as these capitalists were concerned, although their money-capital did not itself produce any profit or surplus value, it was rather as Marx describes fictitious capital, it acted for them as capital, because by lending it out, it came back increased by an amount of interest, whether in the form of coupon, or actual interest, or in the form of dividends. So, it was again the fact of the ownership of capital, now loanable money-capital, or fictitious capital, which determined their income and wealth, not any question of distributive relations. The more of this fictitious capital they owned, the greater their revenue.
If we take someone like Bill Gates whose wealth is around $40 billion, for example, even if we assume that he only obtains a yield of 1% on this wealth, that means an income from it of $0.4 billion a year, or $400 million. Does anyone seriously think it makes much difference whether Bill gates saves a few million here or there in tax on this income? And, of course, that is only in terms of revenue from the ownership of this wealth. As a result of QE by central banks, the yields on assets have been pushed down, because asset prices have been pushed up by that QE. If asset prices (share, bond prices) rise by 10% p.a. then the nominal wealth of Bill Gates would rise by $4 billion, even though none of this would represent an income for him, and would only constitute a capital gain if he were to actual sell the share, bonds etc.
No, Labour has identified the wrong problem, and the wrong target to resolve it. Its policy of nationalising companies, and of transferring shares to workers is also a symptom of that false analysis of the problem. By proposing to nationalise various companies, all it is doing is exchanging shares for bonds, in one way or another. Currently, bond yields are very low, and so this seems to make sense, but by increasing borrowing substantially, the price of bonds will fall, and yields on those bonds will rise. The shareholders in, say, Severn Trent, paid, say, £5 billion for their shares, of course need not use this money to buy UK government bonds. They could buy US bonds, paying a higher yield, or they could simply buy other shares that offered a potential for a higher yield, along with capital gain from a rising share price. Either way, the owners of that fictitious capital will continue to obtain vast amounts of interest on their capital, which ultimately is paid out of the profits created by workers. It changes nothing.
Instead, it would be far more preferable for a labour government to simply change company law on corporate governance so that shareholders no longer had a vote in electing company boards, a vote they have no right to in the first place. If workers and managers elected those Boards, they could ensure that only a market rate of interest was paid on shares as dividends; they could ensure that profits were ploughed back into real capital accumulation; they could ensure that any executives employed by the company were only paid salaries commensurate with the labour they provided, which would be much lower than the vast amounts paid to them currently.
By giving control over this socialised capital to workers themselves the basic cause of inequality that resides in the realm of production, and the ownership of capital would be addressed, and vast amounts of revenues would be transferred directly to workers as wages in the first place, thereby removing the need for bureaucratic and inefficient systems of redistribution via the tax and benefits system. At the same time it would massively shift the balance of wealth and power in the favour of workers, by giving them democratic control over their means of production.
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