Some taxing questions (1981)

From the September 1981 issue of the Socialist Standard

The propagandists of capitalism are always lecturing the working class about our alleged obligations and responsibilities (to the capitalists, of course). We are told that to ask for higher wages is irresponsible, that all pay increases must be earned by higher productivity, that “restrictive practices" must be abandoned. The implication of all this propaganda is that the workers are somehow managing to cheat the capitalists and take more than they give whereas the capitalist system could not operate without the system of legalised theft through which profits are made. Putting that aside for the moment however, one might expect the capitalists, having struck this moral attitude, to set a good example themselves. This is far from the case however; taxation is a good example of their hypocrisy.

The capitalist class throughout the world is divided into various groups, each of which operates a state machine in its interests. To use the terms “country" or “nation” for these entities is to fall into a trap set by the ruling class, to create the illusion that the state represents the interests of the whole population. In order to run the services provided by the state, taxes are raised by the capitalist governments. Part of the fantasy concerning the nature of the state is that the whole population is contributing to the funds raised by taxation, and is receiving certain benefits in return. The truth, however, is that the capitalist class alone contribute to the national exchequer; the other social class the working class-does not pay taxes.

At first sight this assertion appears absurd. After all, many workers on their weekly or monthly payslips will see that a certain amount of money has been deducted for “income tax". And often when we buy something, the price tag will tell us that “value added tax” has been included. The answer to this apparent contradiction lies in the way wages arc determined.

In order to have access to the means of living, workers must sell their labour power, physical and mental energies, to an employer. Labour power is a commodity and its value, about which its price fluctuates, depends on the labour time necessarily involved in its production and reproduction. The wage or salary which the worker receives is the price of the labour power, on average just enough to keep the worker and any dependants in a state fit to carry out the tasks required by the capitalist class. Of necessity it must be the net wage, the worker’s take-home pay, which represents the price of labour power. Thus the “income tax” deduction on a worker’s pay slip is. in fact, part of the employer’s payment to the exchequer, and not a charge on the worker.

Now, in view of all the denunciations by the capitalist media of the “greed” and “irresponsibility” of the workers, what sort of example is set by the capitalist class when it comes to their own responsibilities in the matter of paying taxes? Sixty years ago Lord Clyde, a High Court Judge, set the moral tone in delivering judgement in 1920 in the case Ayrshire Pullman Motor Services and D. M. Ritchie v IRC:

No man in this country is under the the smallest obligation, moral or other, so to arrange his legal relations to his finances or to his property as to enable the Inland Revenue to put the largest shovel into his stores.

More up-to-date illustrations of capitalist ethics are given in the Granada TV Production series Business Decisions. The programme screened on 28 June last was devoted to tax problems. The TV Times billing posed the following questions: “How far can a business go to minimise its tax bill? How far will the Inland Revenue go to pursue offenders and change the law?” The assembled panel of executives, civil servants and “experts” were in basic agreement that to stretch the letter of the law to its limit for the purpose of tax avoidance was perfectly legitimate, indeed laudable. When it was suggested that “the government needs this money”, a company finance manager said simply “I need it too ”.

Illustration by George Meddemmen.

One thing is certain however: if some capitalists can reduce the tax bill they pay to the state, either more must be extracted from the other capitalists, or the services provided to that class as a whole will have to be reduced. The hypocrisy in the attitude expressed by this finance manager does not lie so much in saying that “his” firm need the money (although many who have massive resources will say this) but in the sharp contrast between the morality displayed here and the continuous demands for sacrifices from the workers. The distinction drawn in the programme between tax avoidance which stays just within the law, taking advantage of loopholes in it, and tax evasion, which the state is usually compelled to punish severely, is one which is of some concern to the ruling class although in reality no difference in principle is involved.

The use of tax havens has become increasingly common, so that it is now probably the most popular method of tax avoidance. A tax haven is a country where a taxpayer from a different country may achieve some relief from the taxation in his place of origin. Small states such as Lichtenstein and the Cayman Islands, which do not need to provide much in the way of services, are famous as tax havens. The revenue authorities in these places know that there is only one reason for a non-national forming a company there. However, some eminently respectable financial centres can also be used as tax havens. It is not, for instance, generally realised that Britain comes into this category, despite all the propaganda from the ruling class about “penal rates of taxation”. There are considerable attractions for non-residents, or even foreign nationals temporarily resident here. A UK registered company controlled from abroad pays no UK corporation tax on its non UK income and is free of capital gains and capital transfer taxes. This has made a useful and prestigious base for many multi-national businesses.

It is a sobering thought that this double standard is so openly admired by so many workers. It illustrates again how little pressure is yet being exerted for the abolition of capitalism, despite the misinformed optimism of a few left wingers. People generally act in what they believe are their best interests, and tax avoidance is only one quite small illustration of capitalists doing just that. To denounce them for doing so, as many left wingers do, is to miss the point completely. The trouble is that the working class have an incorrect appreciation of where their true interests lie, still believing that the capitalist system can somehow be made to operate, like some great tropical tax haven, to their benefit.

E. C. Edge