This Taxation Business
In the first issue of this journal The Socialist Party of Great Britain stated that it does not matter to the working class whether taxes are high or low, or whether they are direct, like present day PAYE, or indirect, like the duties on beer and tobacco. Other political parties and the trade unions greeted this with astonishment and unbelief; how, they asked, could anyone be so blind as not to see that workers would be better off with lower taxes? It is the purpose of this article to show that the statement was, and still is, a correct one.
Taxation is always in the news and it got special attention on May 8 last when a collection of opposition parties in Parliament forced the government to reduce Income Tax from 34p to 33p in the pound. The debate was being broadcast on Radio, which accounts for the MPs utterances containing more than the usual amount of humbug. With one exception, all those who spoke, whether for reducing the tax or for not reducing it, said that their sole concern was the wellbeing of “the nation”, but each side had the gravest doubts about the good faith of the others.
Mr. Healey thought the real intention of the Tories was to “grub up a few extra votes”. It seems that in his sheltered life he had never before encountered a political party so depraved as to frame its policy to catch votes. He made much of the Tory and Liberal admission that they favoured reducing direct taxation and increasing indirect taxation, VAT. What shocked him most was the Liberal John Pardoe’s view that there should be an even greater reduction of Income Tax. Did Pardoe not realise that the consequent “enormous ’’increase of taxes on beer and tobacco would raise the cost of living by as much as 3 per cent? (Under Mr. Healey’s guiding hand since February 1974, the cost of living has gone up by nearly 100 per cent).
An argument that did appear in several speeches was that reducing Income Tax would improve the workers’ “incentive to work”.
The one MP who stood aside from the general discussion was Enoch Powell. He made it clear that his group of Ulster Unionist MPs (who usually vote for the Labour Government) were simply using the occasion to bring pressure for the restoration of local government in Northern Ireland. Not one MP mentioned a certain forbidden ten-letter word — the word capitalism; but it is capitalism they were dealing with.
Capitalism is a complicated social arrangement, with many internal conflicts and contradictions. One consequence is that politicians, who need the workers’ support and votes, have perfected the art of presenting capitalist policy as if its real aim was to benefit the workers. It is not safe to accept things at their face value, which is the error made by those who tell the workers that what they need is lower taxes.
At first glance the case they make seems self-evident. If the PAYE deduction from wages goes up or if taxes put prices up surely the workers are worse off? And if PAYE or prices go down surely workers are better off?
The people who use this argument about price increases associated with higher VAT use the same argument about all price increases, whether related to higher taxes or not. (It is not necessary here to go into the question whether taxes on goods actually do simply put up their prices. For the present argument we can accept the belief that they do have this effect).
We can at once concede that at the moment when PAYE goes up or the cost of living goes up the workers are that much worse off: but what we should be concerned with is the longer-term, continuing, situation. And the fact is that, subject to variations due to other, quite different causes, the wages and salaries of the working class as a whole become adjusted to changes of PAYE and changes of the cost of living.
What really matters to workers is their “take-home pay” after deduction of PAYE and Social Security contributions, and what it will buy. It is this purchasing power that continually adjusts itself; not automatically, but through the struggles of workers inside and outside the trade unions, struggles influenced by the varying levels of unemployment. Government “wage restraint” propaganda and policies also play a part.
When purchasing power is reduced by higher tax deductions or price rises, workers react by seeking higher wages. When there are tax deductions or prices fall the workers’ resistance to pressure by the employers weakens. Earlier this year Mr. Healey held out an offer of lower PAYE as an inducement to unions to moderate wage claims.
There is plenty of evidence from past experience to show how take-home pay has adjusted to tax changes, and to changes in the cost of living.
First let us look at Income Tax. In the 19th century hardly any workers came up to the pay level at which tax became payable. During the Crimean War the government considered lowering the tax level so that most workers would pay tax. The idea was dropped for two reasons. First, the high cost of collecting large numbers of small amounts of tax would have been greater than the total amount collected. That is why, with inflation, Chancellors of the Exchequer periodically raise the taxable level to exempt low paid workers from tax. The second reason was that, because unemployment was then very low, it was realised that the workers would be able to get higher wages and thus maintain their purchasing power in spite of tax deductions.
Between 1938 and 1947, Income Tax changes brought far more workers into the pay level at which tax was deducted, and the proportion of pay deducted as tax had greatly increased. (In addition the cost of living had risen sharply). So were the workers worse off? A study of wages in Britain published by the American Department of Labour found that the purchasing power of take home pay had just about kept up with all the changes. A comparison between the purchasing power of present average earnings and that in 1938 shows that this upward adjustment has been more than maintained between 1947 and 1978.
Now for changes directly affecting the cost of living. In 1846 the industrial capitalists secured the abolition of the Corn Laws, thus enabling cheap food to be imported (at the expense of the landowners). It was presented as a boon to workers. Would not their wages now buy more? What the industrial capitalists really aimed at was that cheaper food would enable them to pay lower wages. (Later on when many manufacturers themselves wanted protection to keep out cheap foreign goods they presented it in the guise of “protecting the workers’ jobs”).
Between 1920 and 1926 the cost of living fell by 31 per cent, and PAYE was also reduced. Lucky workers? Not at all. Unemployment was heavy so that, in spite of attempted resistance through strikes, the workers were forced to accept an average reduction of wages of 32 per cent.
A special case of capitalist policy presented as something to help the workers was the introduction of rent restriction in 1915, by a Tory Minister in a coalition government. Because house-building had stopped on the outbreak of war in 1914, rents were rising. Rent restriction was imposed (at the expense of the landlords) in order to dissuade workers from striking for higher wages which would have adversely affected manufacturers as well as interfering with the war effort.
Rent restriction was adopted in many other countries and in the nineteen twenties the International Labour Office conducted enquiries into its effects. A typical finding was that related to Austria. It showed that in Vienna the rent paid by workers had fallen from 20 per cent. of wages in 1914 to barely 1 per cent. in 1923. So were the workers better off?
Most of the workers were in the same position as in Germany; they had practically no liabilities under the heading of rent, but the corresponding amount was not included in their wages. The actual gain was thus nil.
So we are on the solid ground of experience in asserting that taxation is not a working class issue, not forgetting that this presupposes that the workers continue the struggle to maintain and increase wages as far as conditions allow.
For the capitalists the position is quite different. Having exploited the workers to the fullest extent, having got maximum output at the lowest wage they can induce workers to accept they have to pay, out of their profits, the cost of maintaining the State apparatus, the armed forces and so on. The burden of taxation falls on them. It follows that as a class they have very good cause to keep government expenditure as low as possible so that taxation can be correspondingly low. The workers have no such interest.
There is another difference between the two classes. The capitalists have every reason to continue capitalism indefinitely, but workers who give the matter a little thought must conclude, with us, that it is in the interest of the working class to get rid of it.