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Cooking the Books: Hard Work, Taxes and Profits

In an article in the Times (30 October) David Cameron pontificated about having a moral duty to reduce taxes:

‘Every single pound of public money started as private earning. Every million in the Treasury represents a huge amount of hard work: early morning alarms, long commutes, hours spent on the factory floor, the office, the hospital ward or the classroom.’

The first sentence is not true but the rest is.

As the government as such produces nothing it does have to get all its money from elsewhere. However, it cannot be said that ‘every pound’ comes from ‘private earning’ if by this latter is meant wage and salary earners.

The government’s money comes from two sources: taxes and borrowing. Governments borrow from financial institutions but what these lend it can hardly be described as ‘private earning’. It is money capital accumulated from past profits, i.e., from past ‘unearned income’ (as the Inland Revenue used to call it in the days before spin).

As to taxation, some comes directly from taxes on profits, once again not ‘private earning’ but unearned income. Even the taxes paid by workers fall in the end on employers (though ‘paid’ is probably not the right word here as, with PAYE, workers never see it and what they have to live on is the take-home pay that goes into their bank account). A tax on wages is an indirect tax on profits as it increases the cost of recreating a worker’s labour-power and so what the employer has to pay for it. Economists have long known this but politicians are reluctant to acknowledge this as it blows apart their myth that we are all taxpayers together.

On the other hand, that ‘every million in the Treasury represents a huge amount of hard work’ is true. The hard work described by Cameron is the source both of the taxes that ultimately fall on profits on and of the accumulated profits that governments borrow.

So, if there’s any moral duty involved because of the ‘hard work’, it would not be to reduce taxes but to reduce, in fact eliminate, the unpaid hard work of wage and salary workers which produces the profits that governments tax or borrow.

In any event, Cameron’s moral high ground begins to crumble when he sets out another reason for reducing taxes on profits:

‘We know the economic case for cutting taxes: in a competitive world we cannot afford to carry on as a bloated, high-taxing, welfare-heavy nation (…) We have to fight the notion that you can endlessly suck more taxes out of businesses and bite the hand that feeds.’

That’s a rather different argument – that taxes on profits have to be reduced so that businesses operating from Britain can remain competitive on world markets. It’s an admission, too, that capitalism is governed by the quest for profits and that governments have to go along with this, even at the expense of the welfare of those they rule over.

In fact, how come that ‘welfare’ has become a dirty word under capitalism? The dictionaries define it as ‘the state of faring or doing well’ and ‘good health, happiness and prosperity’. Capitalism, on Cameron and the other politicians’ admission, is not geared to pursuing these objectives but to pursuing profits. It’s profits before welfare, which is why capitalism must go if we are to have a true welfare society.