THE SWINDLER Horatio Bottomley, when he was a Liberal MP in 1907, proposed in Parliament measures to finance Old Age Pensions for all people over sixty five. The chief proposals were an Employer's Tax of a penny in the pound on all wages; super-tax on investments; Stamp Duty on share certificates; a tax on racing and betting stakes; and State appropriation of all dormant bank balances and securities.
His biographer Alan Hayman says: "It is a tribute to the acumen of Horatio Bottomley that nearly every one of his suggestions has subsequently passed on to the statute book in some form or another." The acumen obviously came from the frauds Bottomley had already been involved in: having done down a number of wealthy individuals, he knew that if revenue on a big scale was wanted it could only be had from the capitalist class on the assumption that it was in their ultimate interests to pay.
It is a pity that more people have not understood the position so realistically. The idea that taxes are paid by the working class to upkeep institutions which belong to them is one of the myths by which the majority are misdirected towards non-issues. Of course phraseology plays a major part: the revenue from rates and taxes is always described as "public money" and "the taxpayers' money". As with terms like "the nation" and "the British people", it is necessary to ask what is meant by "public" and who are the taxpayers. The case which the Socialist Party of Great Britain has put forward consistently since 1904 is that rates and taxes are a burden not on the working class but on the capitalist class; and this remains just as true in 1975.
Working Out Wages
Many workers would at first glance treat this as preposterous. They are possibly "having to pay" several pounds a week in income-tax deducted from their wages; the prices of petrol and cigarettes are high, and other prices are pushed up, by tax additions. At the present time local rates are expected to go up by fifty per cent. or even more. These are seen as inroads on the money people have to live on, and there has been talk of organized refusal to pay rates if the increases are as great as expected.
The first and most important question is: what are wages? The capitalist system is based on the ownership of the means of production and distribution by a minority, who therefore live by owning. The great majority, having no such resource, have to live by selling their labour-power - that is, working for wages. Thus, labour-power is a commodity like anything else, and its price like all prices is the expression in money of its value - what went into producing it and is needed for reproducing it. At the lowest level that can mean enough money for the food and the rent, but in practice it means meeting many requirements. If the unskilled worker's labour-power is a cheap product sold at a low price, the professional worker's salary (equals wage) takes account of his training and the components of his "standard of living".
But whatever their amount, wages are obviously what is received : the actual payment, not a hypothetical one. Workers cannot help but be aware of this. No-one will be persuaded that £30 is £40 and that the latter figure is a "true" wage; the opposite is the case. The illusion created over "tax deductions" is that if only they could be evaded or reduced in some way, the worker would be so much better off. The single man with a big gap between gross and net pay sees that his colleague with a family has a smaller gap, i.e. takes home more wages, though he probably has less to spend in the end. If only some benevolent tax legislation would provide the best of both worlds!
Paring and Portions
It should be recalled that large numbers of workers were not involved with income-tax at all before the last war; like keeping a bank account, it was regarded as a sign of being well-off. In Studies in an Inflationary Economy (1966) F. W. Paish gives tables showing the percentages of total earned-income tax drawn from different income groups before and after the war. In 1938, 87 per cent. came from the first (the highest) 500,000, and all the tax was attributed to the first 5 millions or less than half of all employed persons. By 1959 the first 500,000 were responsible for only 42.3 per cent. The first 5 millions provided 72.3 per cent., and the range covered the first twenty millions.
This is part of an argument by Paish that there had been a marked equalization of incomes. In fact, the changes in the figures for earned incomes at the top and tax drawn from them reflect changes in the taxation system more than anything else. But, if one granted that the working class as a whole had become concerned in direct taxation since 1938, these figures show what a small concern it is. In 1938 more than half of earned incomes paid no tax; in 1959, with the number of employed persons doubled, roughly three quarters paid only just over one-quarter of the tax.
What tax deductions achieve is an apportionment of income among the working class. Their introduction early in the war (linked with the post-war credits scheme, a fraud which Bottomley would have envied) had the object, besides raising money, of restricting consumption: they were reductions in wages. The workers most hit by them were, of course, the unmarried ones whose spending money was cut. This remains the case, and it means that the discontent of married workers with homes and families, which is the main strength of wage demands, is checked to some extent.
Incidentally, a report in The Observer of 16th February bears out that tax deductions are cuts in wages. Wedgwood Benn, the Secretary of State for Industry, addressed a Labour meeting at Hillingdon : Although ostensibly attacking the Tories, Mr. Benn was evidently warning the Chancellor [Denis Healey] that he would not accept any brake on consumption. He denounced as a `pre-war remedy' the idea of a wage cut.
Under Mr. Healey's plans for bringing down inflation, the level of take-home pay after tax would have to rise less fast than prices.
Paying for What?
Realistically, therefore, income-tax as far as the working class is concerned is a more sophisticated version of Bottomley's proposed Employer's Tax on wages. Not much thought is needed to see that it is paid by employers in any case. It is applied to individual wage-packets to effect varying payments according to status - single, married with no children, married with several to support, etc. - from a notional common wage. (We are not here considering national insurance contributions, which generally are returned to the workers as benefits.)
One argument is that workers do pay taxes but receive benefits in return; thus, that food and housing subsidies and public services are, as it were, purchases on an equaled-out, socially "just" basis. Certainly it is true that subsidies and services are provided by the Government out of taxation, but the beneficiaries over the costs are the capitalist class. Subsidies are an important means of keeping down the cost of living, and but for them the wages bill would be much higher.
Moreover, they are a means again of apportioning. Those chiefly affected by them are workers with families. Why should capitalists have to pay workers all round to meet a cost, when those to whom it applies can be selected? This is the purpose of housing subsidies, rent rebates, family allowance and so on, as well as subsidies on food.
What should always be borne in mind, nevertheless, is that the main burden of taxation is for government expenditure on the civil service, armaments, law enforcement and the rest of the general maintenance of capitalism. This is what the capitalist class must support. That is not to say they pay tax willingly. On the contrary, they try continually to have the costs of government reduced - usually by one section seeking to have part of the burden transferred to another section. The differences between the main political parties are largely differences over taxation and expenditure: how the money shall be collected and how it shall be spent.
Taxes and Prices
Where indirect taxation is concerned, here again it is commonly assumed that the taxes on commodities are an extra charge to the purchaser. In fact price increases caused by taxes are no different from increases due to other factors. Although the introduction of Value Added Tax in Britain has made the prices of many commodities rise (though some have fallen, or risen less than they would otherwise have done), few people would think of it as a reason for continuing inflation; and even fewer would think of taxation as a reason for the difference in prices between 1914 or 1939 and now.
Government policy over indirect taxation in the past has always been to seek industries where monopoly or near-monopoly conditions ruled, demand for the products was fairly inelastic, and high profits being steadily made; and then to "cream off" some of the profit. It is by no means true that the tax must be passed on as an addition to retail prices. In Benham's Economics (1967) F. W. Paish says:
"In practice, however, a monopolist seldom charges a price high enough to maximize his profits . . . The normal response of producers is to "pass on" the tax to consumers by adding it to their selling price. They may discover after a time that their sales fall off so much that their best course is to reduce their prices somewhat, but to begin with they are likely to add on the full amount of the tax."
The position may appear slightly different with VAT, since the tax takes the form of a straight percentage addition to the retail price. The increasing practice is for prices to be stated "including VAT" instead of naming a separate price to which tax is added. In other words, the producer or seller still seeks the best price he can get, taking the tax he must pay into consideration: prices are prices, just as wages are wages.
The Rates Bill
To workers who are householders, it seems undeniable that rates are an increasingly heavy burden on them. Since there are misunderstandings over what rates are for, it may be worth explaining that they pay the running costs only of local government administration and services: staff salaries, welfare services, the maintenance of schools, roads, sewers, etc. The maintenance of Council housing is normally a separate fund which must be supported from the housing income.
Capital expenditure - the building of houses, flats and schools, the provision of roads and sewers etc. - does not come from rates. The large sums required for these are borrowed by local authorities, if and when the projects are approved by the government department involved. Local government is the branches of central government; its work implements the policies of the central government, by whom its expenditure is controlled.
Rates are a charge on property, and before rent restriction (starting in 1914) diminished private landlords the rates were paid by them from rent revenues. Since that time, house rents have divided into "inclusive" and "exclusive" of rates; in the latter case the tenant pays the rent to the landlord and the rates to the local authority. It is a matter of landlords’ book-keeping - most local authorities still offers a 10 per cent reduction for rates paid en bloc, but not many landlords think it worth while. The effect has been to create the impression that it is the tenant who is the ratepayer; whereas he does not own the house, and is only paying in two parts what he would have paid in total.
The position has been further complicated by the growth of owner-occupation, to the point where alternatives to the rating system are now being urgently considered. The most popular suggestion, though made vaguely, is a "local income tax". Insofar as a great many workers have thought (encouraged by deceitful political catchphrases like "a property-owning democracy") that acquiring their own house was a step upward, it is a tragedy that they acquire only crippling mortgage repayments and are caught in a system of charges intended for bigger fish altogether. When an alternative system is produced, it will show where the burden of supporting government correctly lies.
Socialism, not Reform
One of the hopes of working people when they vote is for reductions in rates and taxes. They hope for "tax concessions", i.e. that their take-home pay will be increased by the deductions being lightened; and for changes in the situation over rates so that they have to pay out less. Their belief is that these changes would make them substantially better off.
A simple answer is to look at times, not so many years ago, when few workers were conscious of income tax problems or received rate demands and prices were lower. Were they better off ? Alternatively one may ask if, supposing it were possible for a government to make tax and rate alterations which favoured the working class, the employers would readily accept the consequent jump in wages? Hardly. Any fall in the cast of living has always been followed by the forcing down of wages, as happened in the early nineteen twenties. The general lowering of wages was, in a short time, practically equivalent to that of the cost -of living. Farm workers' wages, which were 46s. a week in 1920, were 29s. by 1924 and remained at that level up to 1939.
Reformers exist by persuading workers that adjustments and reallocations within capitalism can change their situation. Before the war Dean Inge wrote in the Evening Standard: "Popular education is taking the bread out of our mouths." He was voicing the belief of workers who considered themselves "middle-class" that they were being ruined by taxation; the same section of the working class now complains cf being ruined by the rates instead.
The level of taxes makes no difference to the continual struggle to keep abreast of the cost of living, as the history of legislation in our lifetime shows. It is an error to think that rates, taxes and prices are an issue for the working class; the only issue is Socialism.
Socialist Standard March 1975