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Cooking the Books 2: Pocket money

“TAXMAN WANTS ALL OUR WAGES. We would just get pocket money” screamed the front page headline in the Daily Express (22 September). As the Times had explained five days earlier:

“HM Revenue & Customs is considering plans to deduct tax directly from workers’ pay packets before salaries reach their bank accounts”.

So what’s new? Income tax is already deducted before wages reach workers’ bank accounts, only this is now done by employers not the government. This in fact is one reason why we have said that, as far as income tax on wages and salaries is concerned, workers don’t even pay it. They never see the money. It’s paid by employers.

PAYE (Pay As You Earn) was introduced as part of the war-time Beveridge Plan to “redistribute poverty”, i.e. to try to ensure that the total wages bill was distributed efficiently, from a capitalist point of view, amongst the working class, so that no worker got either too much or not enough to reproduce their working skills taking into account their family circumstances.

Basically, it involved cutting the take-home pay of single workers or workers whose wife worked as they didn’t need to be paid to maintain non-existent dependants. Employers couldn’t be expected to do this themselves as their only concern was the quality of the labour power they purchased, for which they paid the going rate irrespective of the family circumstances of its seller. So it was done through the tax system

The Marxian theory of taxes and the working class is one of the most difficult concepts to get over. Sometimes it’s mistakenly expressed as “the workers don’t pay taxes”. The accurate and scientifically correct way of expressing the concept is that “taxes are not a burden on the working class”.

Even if workers don’t pay the income tax that is deducted from their pay packets before any money reaches their bank accounts, workers do physically pay other taxes. For instance, workers in employment pay council tax in that they themselves have to pay this either in cash or by a cheque or transfer from their bank account.

Workers also pay indirect taxes such as excise duties on alcohol and tobacco and VAT on the goods and services subject to it. These, insofar as they increase prices, increase the cost of living and so the cost of reproducing labour power. This is passed on to employers as higher than otherwise money wages. It is in this sense that taxes on wages and on goods and services workers consume are ultimately a burden on employers.

We’re talking here about average expenditure. Only taxes included in expenditure on goods that enter into the general average cost of living are passed on to employers, not all the indirect taxes that an individual worker might pay. Just because a worker spends more than average on alcohol and cigarettes does not mean that economic forces will lead to their employer paying them a higher wage or salary.

So, yes, individual workers can be affected, adversely or favourably depending on their spending habits, by changes in the taxes they pay. Naturally those who end up worse off will complain, but this is not a class issue as an issue that concerns workers as a whole.

Whether income tax is deducted by employers or by the government is certainly of no concern to workers. What’s relevant is not the gross pre-tax figure that appears on their pay slip, but their take-home pay as that’s what they have to spend on reproducing their working skills. “Pocket money” is rather an apt