Taxation, in one form or another, is an essential function of the State of which it is a part. Historically, the State is the general political institution by which the ruling classes dominate the classes under their control. The State is the sovereign agency dictating its will to its subjects. The means which the State uses to compel obedience are its armed forces: police and military, by which the dominant classes, having conquered their subjects have forced them to turn over their wealth and production at the will of the rulers.
At present; in the United States, the State is operated for the benefit of the capitalists, wealthy private owners of the basic means of production and circulation of all commodities and wealth. The State now functions through an army of government administrators and agents who must be supported. Taxation is the general method by which capitalists collect State revenues to keep the State going.
Taxation can assume many forms. It can consist of a levy of products by which peasants, for example, must turn over a certain portion of cattle, corn, and other farm produce to the collectors for the sovereign's use; it can take the method of a levy of persons for forced labor directly under State control; or it can take the form of a tax in money. This last is the sort of tax in use today and without it the State could not maintain itself.
Under the modern development of capitalism, however, the State has been impelled to undertake large economic tasks which private capitalists may not be able to do, such as the construction of highway and communications networks, great research and development projects, far-seeing scientific objectives, international surveillance etc., which also call for large expenditures to be met by taxation. The government is often placed under huge debts by the capitalists so that heavy interest rates have to be paid through taxation
Modern capitalism has also stimulated the growth of metropolitan centers calling for solutions to housing, sanitation, health, and educational infra-structural problems, so that the capitalists can get the kind of labor force they must have. For this, too, the State must tax.
Categories of Taxation
In the United States today there are local, State and Federal Government taxes all imposed at the same time, but each having a different purpose and destination. The taxes may be classified principally as:
1. taxes on imports from abroad (Federal tariffs),
2. taxes on transportation and communications (including postage),
3. taxes on property (local and State) to cover education, sanitation, health, conservation, recreation, welfare, etc.,
4. poll taxes (State),
5. taxes on inheritance (mainly State),
6. taxes in form of licenses to do business (local and State),
7. sales taxes (local and State),
8. income taxes (Federal and State),
9. taxes on profits of corporations (Federal),
10. so-called "transfer" taxes for: (a) unemployment compensation (b) social security (c) health insurance.
Often taxation is hidden in the price structure. Tne State sometimes assumes a monopoly over certain items (say, salt, matches, tobacco, etc.) charging arbitrary prices that amount to a tax on the general public. Fines collected for violations of the law may also be considered as taxation. The State has also allowed private corporations in effect to levy taxes on the general population, as for example: (a) when it gives a monopoly to public utility companies over certain industrial functions and allows them to set rates; (b) or when it allows a dominant corporation to monopolize an industry so that the corporation can arbitrarily set the prices it wishes; (c) or when it grants exclusive patent rights for items which may be priced at monopoly levels, etc..
But on whom can the tax be levied? It is clear that taxes can be paid only by those who have the wherewithal to pay them. Taxes, on the whole, must be paid by the propertied classes, by the big and the small bourgeoisie who are divided into many sub-sections each one trying to throw the weight of taxation onto the others. Hence a bitter fight arises over which sections of the capitalist class shall have the dominant voice in the taxation process. A myriad of ways are found to minimize the effects or to avoid taxation by the various groups, including: tricks of omissions, exceptions, exemptions, rebates, preferences, loopholes, faulty enforcement, impossibility of enforcement, treaty arrangements, subsidies, State special contracts, guarantees, privileges, immunities, etc.. Taxation becomes a prime method by which propertied classes are ruined and reduced to impotence.
Marxists like to think of the wage proletariat as a propertyless class, but this is not true for advanced industrial countries where only the lower sections of the proletariat are propertyless, but not the middle or higher layers. Under present circumstances many workers of these countries can experience what little property they may have being stripped away from them by taxation. And every effort is made by the propertied classes controlling the State to do so. In previous centuries often workers did not receive enough to survive unemployment periods with dreadful results from starvation and poverty. In developed countries the workers have made a better effort; taxation is levied on them to rob them of the fruit of this effort to the gain of the other propertied sections of the population.
The Burden on Production
One thing capitalism must not do, at its peril - it must not kill the goose that lays the golden egg; it must not destroy by taxation the overall production or productive development of the country. Since capitalism is the structure of a country's economic strength and power, the State must not hamper too greatly that growth by taxation. Let us give certain illustrations:
Capital production may call for certain raw materials, semi-finished and finished goods that must be imported from abroad. If a tariff levied against such articles increases the cost of the import, the cost engendered by the tax will be passed on by the importer to the domestic producer and further on to the domestic consumer. To pay this extra cost a greater amount of exports will have to be used, or a flow of money out of the country take place, with many possible adverse consequences. Such a tariff will, therefore, be avoided by the State unless other favorable factors countervail - such as when the rise in import prices will make it profitable for native industry to compete when it could not do so before under the lower import prices. If the competition is at the higher price then this additional price amounts to a tax for a favored few at the general expense of industry and consumption; if the increased competition lowers the price to the old levels and beyond and yet with new advantages to the native producers, nationalists will consider that result so much to the good.
Employers often claim that high import tariffs, by obstructing or prevenfing foreign competition, will allow them to pay their own employees more, since capitalists, kind-hearted masters as they are, always look after the welfare of their wage-slaves. This, of course, is usually hypocritical pretension. Very high tariffs did not prevent U.S. textile and clothing manufacturers from paying subnormal and sweat-shop wages since the days such high tariffs were established as good Republican Party policy. Be that as it may, the tax on textiles and clothing did increase the cost of living and was a tax on all the people of the country.
Workers who are taken in by such arguments pay little or no attention to the fact that high tariffs in the U.S.A. might produce great hardships abroad with many workers put out of work because of factories closed down there. Workers in favor of such high import rates apparently believe that each group of workers should take care of itself without consideration to national or international solidarity. For the American Federation of Labor high tariff endorsements go hand in hand with restrictions on immigration for the same false nationalistic reasons.
A tariff that places taxes on goods of consumption which cannot be produced at home, is a general tax levy on that section of the consumers which first buys the goods and eventually on all consumers. Such a tariff may not be advisable if the imports come from a country to which the taxing country exports. Without these imports the other country would not be able to take exports from the taxing country. Importing and exporting countries may be so bound up in an inextricable economic nexus as to make separation not practicable.
As can be imagined, tariff taxation can be used as a method of imperialism and of economic warfare. As such, the weapon must be handled very carefully, as the Arabs with their heavy monopoly taxation on petroleum, must experience.
Relatively recently the U.S.A. reached the conclusion that import restrictions were generally not good for international trade, and under President Kennedy called a conference for a General Agreement on Trade and Tariffs (GATT) designed to lower all tariffs to a minimum. The U.S. was prompted in this by its enormous superior international economic position where it believed it could meet and beat all competition against it, by its heavy support of the Common Market and the Organization of European Economic Community (EEC), by the enormous growth of its penetrating powers through its international corporations, etc.. GATT did not accomplish very much, however, and the U.S. has been forced to modify its stand in a number of instances. The solution still fluctuates.
Transportation to and from Work
The transportation of goods is part of the costs of production. The costs of such transportation should be borne by the producers and so should the taxes levied on transportation. The fact that it is more efficient for all producers to join in having a separate transportation company deliver for itself does not change the basic situation. It is true that in earlier days transportation was tied up with merchant capital which was the foundation on which modern production capital arose. But whatever the means of transportation, the transportation industry provides the energy to move goods from one space frame to another and so produces change of space to enable the consumer to use the goods produced elsewhere.
Transportation, however, calls for a contribution from the State in land, in the right of way, in supporting roads and bridges constructions, etc.. In the United States a great deal of this support was given gratis to the transportation company at the price of considerable government regulation to prevent this industry from charging all others such rates as to choke them to death. In other countries transportation facilities were taken over directly by the State. The great expenses of the State in all this were paid for by general taxation, by loans to the State, and then in part by taxation of the transportation facilities in the form of taxes on rates of traffic and on travelers.
Theoretically, the travel of the laborer to and from his employment and his mobility to be able to seek employment freely in the capitalist markets is an item that should be covered by the average wage. If it is not so covered it is a sign that the wages are insufficient since capitalism must have such worker mobility, or it is a sign that the wages are enough to cover such an item already. A tax on the transportation of the worker's labor power is only to take back the surplus he was given originally in his wage. Otherwise bus, railroad and other travel fares are only a method of shifting the burden of transportation from the producers to the consumer and to reduce the workers' real wage levels.
A similar consideration prevails in regard to the gasoline tax. The tax is earmarked to pay the expenses of the construction and maintenance of a road transportation system vital to business; it should therefore be made a general business tax. Instead it is made a consumer tax payable by the general public and is another instance where productive costs are shoved on to the backs of others.
Again, consider the mail postage system which also should be at the direct expense of the producer as part of his cost of doing business. Here the government replaces the private or public transportation company, but with the burden shifted to the individual consumer as far as possible, again an attack on the workers' real wages. Individual postage, like individual travel should be free and included in the wage structure, the productive and circulating system paying full costs. The postmaster can be supported as are other general functionaries of government, by general taxes levied on the income of the beneficiaries of the system, the wealthy capitalists. The fight against postage rates being applied to individuals shows that even when the means of communications and transportation are nationalized the fight of the consumer to avoid being hurt is not over. The fight for the elimination of all such rates should be a foremost demand especially on the part of the unemployed and poor.
Taxes in the form of licenses to do business are generally conceived as part of the expenses of doing business, in most cases too small to affect the consumer to any considerable degree. They are capable of great misuse, however, and are prime methods of controlling the petty entrepreneur and tradesman.
Corporate Profit Taxes
Potentially the most important item in this category of taxes levied directly on business is the tax on corporate profits, often called the excess profits tax. Here the petty bourgeoisie in its fight against Big Business and Monopoly, have somehow decided which profits are "fair" and which are "excessive", something along the line of a "fair day's pay for a fair day's work". Profits labeled "excess" are taxed a certain percentage.
Corporate profits can either be distributed as dividends, bonuses, and other payments, or may be ploughed back into the business either first accumulated as a hoard, or spent directly. A high rate of profit means a growing and healthy capitalist economy and successful competition. It is not the function of the working class to destroy the productive ability of our economic society, even though it is capitalist; on the other hand, we should not let the production capitalists shift their costs on to the general public. Our fight is with the capitalists, the private owners of industrial, commercial, and financial enterprises, not normally with the rate of production. We wish not to destroy business but to take it over, removing the private capitalists and socializing production. In the present phase of struggle our primary objective must be to throw the burden of taxation onto the wealthy classes by means of shifts in income taxes and imposition of inheritance and sumptuary taxes not adversely affecting the cost of living. Profits not reinvested but hoarded could be specialty taxed until reinvested.
The situation where the State does not tax profits can accelerate the process of concentration and centralization of capital as a whole, thus augmenting productivity and economic advance. The slowing down of this process by profit taxation does not help the working class in the least, any more than the fight against the introduction of new machinery and scientific equipment is a function of working class action.
Concentration of Capital
Capital concentration and centralization accentuates the polarization of classes and leads to sharper and more decisive class struggles. On the other hand, if the State taxes profits, the profits may be dissipated as revenue to stock and bond holders where they can be taxed as income, but their income would be slowed down as the corporation's rate of growth faded. What is most important in a capitalist society is not so much its mass of profit, or even its growth of profit, as its rate of growth!
As part of the cost of business the capitalists have to pay wages. Generally the worker receives in return for the sale of his labor power to his employer wages that will buy necessities enough to: (a) replenish that labor power, (b) allow the worker to keep in reasonably good health, (c) allow the worker to go to and from work and to seek work freely, (d) allow the worker to maintain an average family to reproduce children who will survive to become the wage-slaves in the future, including the maintenance of a wife and aged parents, (e) permit the family to survive in bad time of depression and of unemployment, as well as in good times of prosperity, since both aspects are inevitable processes under capitalism.
The level and items of expenditure needed to pay for the consumption for the replenishment of lost labor power naturally can and does vary regionally and nationally and according to individual and family needs. Each people or group maintains an historic standard of living often differing markedly since a worker may replenish his labor power by consuming meat, fish, wheat, milk, beer, and vegetables, etc., or by consuming beans, bananas, and water. Within certain limits the workers' living standards can be driven lower and lower and yet suffice to replenish the lost labor power expended in the production process. The worker must be eternally vigilant to defend his historic standards or their equivalents (as, for example, when he opposed Prohibition in the United States).
Wages paid the workers have to be large enough to be sufficient to cover periods of unemployment. In the past often this level of wages had not been paid and long periods of unemployment have found a destitute and rebellious working class increasingly difficult to control, especially as these workers became class-conscious. Hence arises the need for establishing a compulsory unemployment saving fund that will at least partially guarantee that the wages paid will cover periods of unemployment as well.
Naturally, the payments out of such a compulsory savings fund would have to be part of the wage structure and the tax would have to be levied on the payroll of business companies. If the employees, in the United States, do not receive full wages when unemployed, this is supposedly because their regular wages already cover in part the possibility of unemployment expenses. Payment of partial wages during unemployment is part of the method capitalists have to regain any surplus that may exist in the funds of the workers. That only partial wages are paid is also due to the lack of adequate militancy on the part of the working class.
The Employer as Tax Collector
Wages paid workers theoretically have to cover periods of no work due to illness, accidents and disability, as well as permanent dismissals. Such items have now also been established as a permanent compulsory savings fund for old age, disability, and medicare. This fund, for the most part, again is collected by business companies as part of the cost of doing business, although here not only the employer but the employee is taxed as well. The employee is never trusted to pay the bulk of the tax; the employer does it for the worker as agent of the State.
But how can the worker be taxed if his pay covers only the bare minimum for his immediate expenses? The obvious answer is that the tax can be levied and collected because the worker has already received as wages a sum sufficient to cover this tax. What the employer has given with one hand he has been very careful to take immediately back again with the other hand as agent of the State. But why all this indirection? Would it not be simpler and better were the tax levied directly on the employer and no wages increased? Let us analyze the rationale behind this indirect procedure.
In the first place, in most cases the relation between pay increases and taxation is not a simple mechanical one. The State does not decide to tax workers and then order their agents, the employers, to increase wages so as to enable the workers to pay these taxes. In most cases the workers have been able to force the wage increases first, due to favorable circumstances and struggle. It is possible for workers to increase their real wages because the economy of their country is strong and prosperous and stands in a monopolistic or imperialistic position in the world earning super-profits for employers. It is possible for workers to have strong and militant unions to threaten the employers with dire action unless wage increases are forthcoming. Employers may be attacked individually, not collectively, and in some cases may be too weak to stand the struggle of a powerful working force leveled against them. Now with such real pay increases the workers are able to pay the tax especially needed as a compulsory national savings fund for old age security and medicare. At the same time their income is reduced and the power of the employer, especially as agent of the State, is reinforced.
Secondly, by first increasing the nominal pay to the worker and then taxing that increase away the State and capitalism give certain illusions to the worker: that he is the recipient of real wage raises and to some degree a property owner, and that as property owner he is like all other property owners paying taxes to a State that acts in his behalf. The State now is partly his State and he must eschew all thoughts that the State is his deadly enemy controlled only by enemy classes. He can be induced to take part in the large number of taxation struggles and make them a decisive part of his political activity, rather than concentrating on the employer.
Taxes levied directly on business would be considered part of overhead expenses and reduce net profits accordingly, other things being equal. Taxation on the payroll however, forcing an increase in the payroll to meet the charge of taxes, causes an increase in the cost of production upon which the average rate of profits is to be calculated, other things being equal. Such a tax thus may increase prices and profits. Taxation thus has a great influence on the price and profit structures. It must be said that the workers have not opposed these "transfer" taxes, in fact they demand a greater unemployment compensation tax on employers so that they can receive full pay for the entire period of their unemployment. It is different with taxes levied for social security and medicare. Here the working class wants the whole tax paid by the employers. Also the working class violently objects to the mass of fraud and corruption, the inefficiency and waste by which the tax funds are dissipated, with cheating employers and professionals ripping off billions of dollars annually and workers deprived of the adequate care they need and expect.
We turn now from the taxes levied on business, but which in effect operate as consumer taxes (since the worker-consumer ultimately bears the burden of these taxes) to the taxes levied directly on the consumer mainly through business.
The Sales Tax
The principle tax on consumers is the sales tax levied through retailers on the consumer when sales are made. Here it is the merchant who is the agent of the State, who collects the tax and must turn it over to the authorities. In some States the merchant may keep as much as 20% of the tax for his services.
If such a tax is on luxury or sumptuary items, the working class can only look on with favor. A tax on luxuries would reduce luxury business rates and profits, would cause a shift of production to necessities bringing there more capital and products, and tending to lower prices affecting workers' consumption. If such a tax is on necessities which raise the cost of living, it is a blow at the sufficiency of the wage structure and the historic standard of living. This might bring on violent protests from the toilers on whose backs the regressive tax falls most heavily. The workers try to shift the sales tax on to the employer by securing compensation cost of living wage increases; but generally the cost of living rises first and the wage levels rise belatedly after. If the workers have developed a pay scale already higher than adequate to meet the costs of replenishing their labor power, then the sales tax is an act by the State to strip the workers down to that minimum level which the employers by themselves were not able to do. Again the State comes in to help the employer while a good part of the sales taxes goes for purposes to favor employer objective.
Consumer Taxes Abound
Consumer taxes beset the working class on all sides: there is a telephone tax, a telegraph tax, an amusement tax, a tax on electricity and on gas, a tax on water which the landlord shifts on to the renter consumer, a tax for sanitation, taxes in the form of bus fares, taxes on gasoline, on travel, on general sales, etc..
The working class as a whole must call for the elimination of all these consumer taxes affecting the cost of living. Large sections of the unemployed, of the toilers, and of the poor cannot shift these consumer taxes on to the employer. They can only demand a belated matching increase in relief and in unemployment compensation which can be won only with the help of the working class and other class elements also adversely affected.
It should be kept in mind that sales taxes are not carefully controlled as are taxes on business and they are not earmarked necessarily for special purposes. They are used for general funds and expenses for the State and furnish a nesting place for the vermin in all parts of the State apparatus and in business who can profit from the use of these general funds.
In a way the direct tax on real and personal property is also a consumers tax. So far as the working class sections are concerned which own homes wholly or partially, here the State is generally more careful, limiting the purposes of the tax to such matters as sanitation, education, etc., and favoring business more by arbitrary favoritism in rating, by exemptions and exceptions, etc., than by direct class legislation against the poorer sections. Here, again, every effort is made by the State to give the worker the illusion that he is basically a property holder and, as such, has a duty to support the social structure and the State.
The Income Tax
We come to what, in some respects, is that most important tax of all, the income tax. It is levied on the working class as well as on all strata of the bourgeoisie. At the turn of the century when the income tax was first proposed in the United States and pushed by socialist parties the wealthy raised such a howl that they would be expropriated by "socking the rich" and socialism brought in by the back door that the legislation was declared unconstitutional. Only after the U.S. Constitution was amended was an income tax allowed by the courts and by that time the wealthy found it was they who could "sock the poor" and load the burdens of the State on to the working and other classes while avoiding being taxed themselves.
The income tax should be a progressive tax, that is, it should tax only those with income more than sufficient for an average comfortable life, with rates increasing rapidly to the point where the wealthy support their own State to the tune of 100%. This is very far from the actual situation. The progression of the tax is very low, large numbers of wealthy pay nothing and others much less than they should. The main burden is on the working and middle income classes. Many workers, for example, pay 20% to 30% of their wages in income taxes (when we add sales and other forms of consumer taxes it may run to as high as 40%, to which interest payments on their debts must be added). Here is a primary method of reducing the real wages of the workers while seemingly giving them increased nominal wages. In the end, as the statistics of the aged show, the great mass of workers are poverty stricken and destitute during their older years and must be supported.
The class nature of the income tax is revealed in its collection. The great part of the tax is taken from the workers by the employer as a payroll tax, at the time the worker is paid. Here, then, the employer does not cheat. But this does not hold true for those wealthy receiving income from many sources. Such recipients are paid their income and then at some later date supposedly can pay their income taxes. Now occur the most scandalous cheating, lying, and stealing. All are plain crooks, with few exceptions. Only a small portion of the income of the wealthy ever sees the Bureau of Internal Revenue.
An income tax is a tax on revenue not on capital. If the wealthy alone should be taxed for the costs of the Pentagon, say, they might try to export their wealth which could be prohibited, or might invest their incomes back into the businesses from which they came. This would accelerate the rate of centralization and of concentration of capital and would hasten the end of the entire system.
Today the income tax is the principal source of general funds for military and government spending. It pays the high interest rates on the maximum of close to a hundred billion dollars a year in the United States. It allows a budget spending of over a trillion and a quarter dollars. It is the basic financial source of U.S. international power. Here, then, is the place the workers must attack with their slogans: No income tax on the working class! No income tax on those earning less than an average standard of living! Let the wealthy pay for their State! We promise them full freedom from taxation when we take over the State and expropriate them!