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Cooking the Books 2: Profit Freedom Day

“You could have to work for 134 days each year just to pay your tax bill” (their emphasis) read the headline of a full page HSBC ad in the Times (16 March).

“Income Tax, National Insurance, VAT, car tax . . . it all adds up. In fact, in 2009 the average Briton had to work 134 days before they had earned enough to pay their taxes”.

The source was given in the small print at the bottom of the page as the Mad Marketeers of the Adam Smith Institute who each year calculate a “Tax Freedom Day” as the day when people supposedly begin to keep the income they “earn” instead of it going to the taxman (adamsmith.org/tax-freedom-day). According to the small print, “This is calculated with the total tax paid each year by a taxpayer on average income, including indirect taxes, local taxes and National Insurance contributions.”

Actually it is not calculated in this way at all. What is calculated is total government tax revenue as compared to “net national income”, but instead of presenting this as a percentage – 36.7 percent – it is presented as a number of days out of a year (134/355 is the same as 36.7/100). At no point does a figure for the “average income” of the “average Briton” enter into the calculation. This is merely the tendentious and populist way of expressing the result of calculating government tax revenue to national income.

Even if we leave aside the Marxian contention that taxes on wages and salaries are passed on to employers and so ultimately fall on profits. not all taxes are paid by individuals. There are some two million capitalist firms in Britain and these pay taxes (corporation tax, business rates, etc). The Adam Smith Institute gets round this problem by saying that such taxes “ultimately are paid by the owners of each business”. This is to admit that it is not just the income from work that is involved, so that it is illegitimate to talk, as does the HSBC advertisement, of people having to “work” so many days a year to pay taxes.

The Adam Smith Institute’s expert is more cautious, claiming only that their so-called Tax Freedom Day is “the day when the average Briton earned enough to pay his annual tax bill” This is to play on the ambiguity of the word “earned” as, if challenged, they would no doubt reply that this is not just income earned from work (which is what most people including HSBC’s advertising firm would think is meant) but also income so-called “earned” from owning savings.

Adam Smith himself pointed out, in the opening sentence of The Wealth of Nations (he wasn’t as bad as the Institute that’s hi-jacked his name), that labour is the source of the whole of a country’s national income:

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”
 
This being so, the share of profits in national income is a product of labour, in fact of the unpaid labour of workers. In 2008 the share of profits in National Income was 24 percent (see economicsonline.co.uk/Managing_the_economy/National_income.html). This is the same as 88/365, so it could be said that the “average worker” works 88 days out of 365 to produce profits for their employer. In which case 29 March would be what might be called Profit Freedom Day. It will be much later than this, except that the concept is misleading in that, as Marx pointed out, workers produce surplus value every minute they work. So there’s no day when they’re not exploited for profit.