Letter: Taxes and Labour (1978)

Letter to the Editors from the March 1978 issue of the Socialist Standard

Taxes and Labour

Thank you very much for your stimulating reply to my letter which was published in your January, 1978 issue. In order to clarify my ideas, I should like the opportunity to answer the criticisms made of my theories.

Firstly, you asserted that, where my hypothesis assumes a retrenchment in the rate of direct taxation (and, ergo, a fall in government revenue from paye), unless the total cost of administration also decreases, then the government has to make an equal increase in the amount of tax collected directly from the capitalists (I presume that here you allude to Corporation Tax). However, if we assume that the cost of administration has remained the same, are there not other sources of government revenue which would obviate the need for more tax to be collected directly from the capitalists. For example, indirect taxation and loans which are not collected from the capitalists.

Secondly, you maintain that it cannot be assumed that a reduction of PAYE can enable the workers to improve their bargaining power increasing their net pay. But if you accept the above explanation of alternative sources of government revenue, which enable the total outlay of the capitalist to remain the same, then perhaps you will also agree that the capitalist will not be concerned about the in creased net pay of his workers since his aggregate outlay on tax and wages has not increased. In fact, he may be pleased if the fall in the rate of tax, by increasing the net pay of his workers, forestalls pressure for higher gross wages, which, if successful, would increase his total disbursements on wages and tax.

P. S. Maloney, 

Palmers Green

 

Reply:

In your earlier letter (SS January 1978) you accepted the proposition "that taxes are paid by the employing class", but argued that a reduction of PAYE would benefit the workers without costing the employers anything. You forgot that if government total expenditure remained the same (which was assumed in your letter) they would have to raise additional tax revenue to meet it. Our reply took the simplest case, that of additional taxes on profits.

You now accept that you had overlooked that if government expenditure remained the same they would need to raise additional revenue following the reduction of PAYE, but you say the government could increase indirect taxation or raise revenue by loans.

Without wishing to go into the complex question of the effect that indirect taxes have on the price level, we can take both cases, i.e. that prices remain the same, or that they rise.

If the capitalists' selling prices remain the same but indirect taxes go up his profits are reduced. If prices go up then the workers have an additional inducement to press for higher wages—and again his profits are affected.

About loans you also overlook the fact that government borrowing via the banks goes along with the persistent increase of the note issue with its effect in raising the price level.

The more important issue is whether the struggle that workers have to engage in to maintain or increase real wages can somehow be avoided by a reduction of PAYE; the implication being that if workers' wages did not come into the scope of Income Tax at all they would be better off. In the 19th century hardly any workers came into the Income Tax range. Are we to suppose that this made it easier for them to maintain or increase real wages?

The fact is that any concession received by the workers lessens the urgency with which they will press for more, as is shown in every strike settlement. Mr. Healey's strategy clearly lecognises this. He has told the Unions that if he succeeds in limiting the increase of money wages to 10 per cent he will make tax concessions, but will not give both a higher increase of money wages and a reduction of PAYE.

The one weapon the workers have on the industrial field is the strike. It is a dangerous illusion that the class struggle can somehow be side-stepped by campaigning for tax reductions.

Editors.