Classic Reprint: Income tax and the wage struggle (2026)

A Classic Reprint from the January 2026 issue of the Socialist Standard

Given the recent budget from Rachel Reeves and the debate about income tax rates and thresholds, we reprint this article as it will have some resonance.

It is popularly supposed to be a virtue in a government not to impose income tax on low-wage workers. So each government tries to claim credit for having made alterations in the income tax which have the effect of freeing some workers from tax liability entirely, or at least of reducing the amount of it. This claim was made by the Labour Party following its six years in office after 1945 and was repeated by the Conservatives at the 1959 election.

Both the claims are so framed as to be distinctly disingenuous.

It was quite true, as the Conservatives claimed, that the raising of the tax allowance exempted millions of people from tax, but it was equally easy to see that, as wages rise, the exempted millions came into tax range again. And when the Labour Party Handbook 1951 claimed that a youth earning £3 a week in 1951 was paying less income tax than would have been levied on a wage of £3 in 1938 it would have been appropriate to point out that £3 in 1951 would buy only about half what it would have bought before the war.

And both governments refrained from stressing the fact that since the war income tax (Pay As You Earn) has been brought down to lower pay levels to take in millions more wage and salary earners than before the war. The number of people paying tax was under four million in 1938, 12 million in 1945, over sixteen million at the end of Labour’s term of office, and up to nearly twenty million in 1961-2. The Tory budget of 1963 removed nearly four million from liability but with every wage increase some will be coming into the range again.

So if it is a merit not to make workers pay income tax neither the Labour Party nor the Tories can match up to the performance of the National Government in 1938; and none of them can compare with the governments in the nineteenth century which exempted practically the whole of the industrial workers and clerks from liability. An article in the summer number of Public Administration, by Mrs. Olive Anderson, shows that in the middle of the century the minimum level of pay liable to tax was about £3 a week, while the wages of even the most highly skilled craftsmen were under 30s. a week, and clerks’ wages were under 40s. a week.

Interest attaches to the comparison because during the Crimean War tax reformers campaigned to get the taxable level brought down so that the mass of workers would be brought in, one suggestion being to make the tax payable on all wages of 6s. a week and over. One of the arguments was that as it was the town workers who were so keen on the war, why shouldn’t they help to pay for it through income tax?

The proposed changes were not adopted, chiefly because of the difficulty and cost of collecting small amounts of tax from millions of individuals, many of whom often changed their jobs and moved to different towns. Below a certain level the tax costs more to collect than the yield to the government.

Later on tax collection became more efficient and more and more people were brought into tax liability by the twofold movement of the lowering of the exemption limit (from £160 in 1899 to £130 in 1915) and the upward movement of prices and wages.)

But what is there in the common belief that the working class as a whole gain from a lowering of income tax and would gain still more if they were entirely exempt? The answer is, nothing at all! The condition of the working class, apart from possible short term effects when changes are introduced, is not the result of taxation whether in the form of income tax or the so-called indirect taxes, Purchase Tax, etc.

To start with, were the working class better off in 1938 when most of them were exempt from income tax and the rate was only five shillings (1s. 8d. on the first £135), than they have been since the war when nearly all of them are within the tax range and tax is at a higher rate? The evidence points to the fact that as a class they were rather worse off in 1938. And to go further back, were they better off in 1900 or 1850 when they paid no tax at all? Again, the answer is No!

In the latest year for which figures are available there were about 23 million wage and salary earners (including company directors) whose total income was about £14,000 million and who paid a tax of £1,200 million. If we take the industrial workers and shop assistants only, with a total wage bill of about £9,000 million a year, the amount of tax might perhaps be in the region of £300 million to £400 million a year.

Of course those who now have tax deducted would find their take home pay correspondingly increased when the deduction was reduced or ceased, and would for a while be better off; but in the general struggle between workers and employers over wages, this reduction of tax would be a factor in stiffening the attitude of the employers. In the situation of recent years, with fairly continuous low unemployment and increasing prices, such a reduction of tax would operate like any slackening in the rise of prices, it would make it that much more difficult for wage claims to make headway against the employers’ resistance.

Conversely, changes which have brought more and more workers into the tax range, or have increased their rate of tax. had consequences similar to rises in the cost of living: they have stiffened the pressure of the workers for higher wages especially when unemployment has been low. In other words now that millions of workers have tax deducted they have come to think in terms of ”take home pay” and to struggle for the maintenance or increase of that, rather than to look at the wage before deduction.

Mrs. Anderson, whose article has already been referred to, has found that a similar situation may have existed during the Crimean War. One of the reasons why income tax was not then extended to take in wage earners was that with the shortage of labour caused by the war it was feared that to whatever extent tax was levied on the workers the employers would be forced to raise wages to keep take home pay at its former level.

In short, struggling to raise wages is in line with working class interests, campaigning over taxation is not.

H. (November, 1963)

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.

Cooking the Books: Pocket money (2010)

The Cooking the Books column from the November 2010 issue of the Socialist Standard

“TAXMAN WANTS ALL OUR WAGES. We would just get pocket money” screamed the front page headline in the Daily Express (22 September). As the Times had explained five days earlier:

“HM Revenue & Customs is considering plans to deduct tax directly from workers’ pay packets before salaries reach their bank accounts”.

So what’s new? Income tax is already deducted before wages reach workers’ bank accounts, only this is now done by employers not the government. This in fact is one reason why we have said that, as far as income tax on wages and salaries is concerned, workers don’t even pay it. They never see the money. It’s paid by employers.

PAYE (Pay As You Earn) was introduced as part of the war-time Beveridge Plan to “redistribute poverty”, i.e. to try to ensure that the total wages bill was distributed efficiently, from a capitalist point of view, amongst the working class, so that no worker got either too much or not enough to reproduce their working skills taking into account their family circumstances.

Basically, it involved cutting the take-home pay of single workers or workers whose wife worked as they didn’t need to be paid to maintain non-existent dependants. Employers couldn’t be expected to do this themselves as their only concern was the quality of the labour power they purchased, for which they paid the going rate irrespective of the family circumstances of its seller. So it was done through the tax system

The Marxian theory of taxes and the working class is one of the most difficult concepts to get over. Sometimes it’s mistakenly expressed as “the workers don’t pay taxes”. The accurate and scientifically correct way of expressing the concept is that “taxes are not a burden on the working class”.

Even if workers don’t pay the income tax that is deducted from their pay packets before any money reaches their bank accounts, workers do physically pay other taxes. For instance, workers in employment pay council tax in that they themselves have to pay this either in cash or by a cheque or transfer from their bank account.

Workers also pay indirect taxes such as excise duties on alcohol and tobacco and VAT on the goods and services subject to it. These, insofar as they increase prices, increase the cost of living and so the cost of reproducing labour power. This is passed on to employers as higher than otherwise money wages. It is in this sense that taxes on wages and on goods and services workers consume are ultimately a burden on employers.

We’re talking here about average expenditure. Only taxes included in expenditure on goods that enter into the general average cost of living are passed on to employers, not all the indirect taxes that an individual worker might pay. Just because a worker spends more than average on alcohol and cigarettes does not mean that economic forces will lead to their employer paying them a higher wage or salary.

So, yes, individual workers can be affected, adversely or favourably depending on their spending habits, by changes in the taxes they pay. Naturally those who end up worse off will complain, but this is not a class issue as an issue that concerns workers as a whole.

Whether income tax is deducted by employers or by the government is certainly of no concern to workers. What’s relevant is not the gross pre-tax figure that appears on their pay slip, but their take-home pay as that’s what they have to spend on reproducing their working skills. “Pocket money” is rather an apt

Doubts and Difficulties. The Poverty of the Capitalist. (1905)

The Doubts and Difficulties column from the September 1905 issue of the Socialist Standard

A correspondent forwards me an extract from a recent book of Sir Robert Giffen’s for explanation. The distinguished capitalist statistician contends that the advantages derived from science and invention during the last 50 years have in the main gone to the working-class.

o o o

“Now,” says my correspondent, “I wish you to show how this statement made by the highest living statistical authority in England squares with the position of the Socialist. You contend, as I understand, that the economic position of the worker is with every advance in science and invention becoming relatively if not absolutely worse. Who am I to believe—the highest of our statistical anthorties, Sir Robert Giffen, or the unknown, tin-pot, little Socialist “Economicus?”

o o o

Before proceeding to deal with the main economic question raised in the preceding paragraph I wish to protest against the last sentence with its appeal to authority. Far be it from me to place myself against Sir Robert Giffen as a statistical authority. At the same time it may well happen that he is entirely wrong on this question and the Socialist entirely right. The whole history of both the inductive and deductive sciences is the relation of the mistakes of authorities. In no field of human knowledge has the authority always been infallible.

o o o

Not only is it the case that in physics and in metaphysics, in medicine and in art, the authority has been fallible but it is he who has been the most bitter opponent of new ideas and of new truths. Foremost among the revilers of those who put forward the Copernican theory as against the Ptolemaic in astronomy, the undulatory theory as opposed to the atomic theory in optics were the so-called leaders of opinion in those sciences.

o o o

It may well be then that in economics the statistician of recognised repute may be as little justified in his contentions as his fellows in other directions. The appeal in all discussions must be less to authority than to fact. Is Giffen justified by existing conditions in saying that the greatest share of the advantages of the science and invention of the last fifty years has gone to the working-class ?

o o o

In modern society the greatest advantage that one can secure is the ownership of material wealth. It is around this ownership that the whole of our present-day life revolves. Wealth is the motor which sets in motion the industries, the pleasures, the pastimes, of the nation. Invention pertains more largely to industry than to any other feature of our lives. If Giffen’s contention is correct we should find the worker owning a larger proportion of the national wealth than heretofore. The industries modified or revolutionised by invention—by improvements in machinery or in the application of electricity as a motor—should yield for the worker an ever increasing share.

o o o

On what grounds does Sir Robert Giffen contend that the worker receives such an increasing proportion of the wealth he creates ? On the grounds of improving Income Tax returns and of improving figures from the Savings Banks ! He contends that the higher savings in Savings Banks and Friendly Societies and the larger revenue derived from Income Tax show a continued improvement in the prosperity of the people of whom the working-class form the majority.

o o o

This contention would be unanswerable if (a) the accumulations in Savings Banks and Friendly Societies were the savings of the working-class ; (b) any material proportion of the income tax was paid by the worker; or (c) the prosperity of the country meant the same thing as the prosperity of the working-class.

o o o

As to (a) I pointed out in the June number of the Socialist Standard that the Savings Banks contained in the main the savings of the petty shopkeeper and of the children of the middle class. When we find, for instance, as many as 50,000 depositors in the Post Office Savings Bank putting in £50 in one lump sum in one year we know that not one of them is a member of the wage earning class.

o o o

Similarly with (b). The worker does not as a rule receive a wage enabling him to pay income tax. Incomes of less than £160 per annum are exempt from the payment of income tax, and we know that wage-workers getting so high a remuneration are difficult to find. We have the evidence of Sir Robert Giffen himself, given before the Labour Commission a few years ago, that the average wage of the working-class was 24s. 7d. a week or (say) £64 a year. Our experience tells us and this opinion is somewhat strengthened by the investigations, among others, of Messrs. Booth and Rowntree, that even this sum is exaggerated.

o o o

The statistician studying rates of wages in his library is too apt to mistake nominal for actual wages and forgets to make due allowance for periods of sickness, short time, or out of work. When these modifications have been made, and every day they become of greater importance, it, is found that the actual money wage differs very considerably from the nominal money wage.

o o o

With (c) I cannot now deal but on a further occasion I may he permitted to show that periods of trade prosperity and periods of national prosperity are not necessarily synonymous with periods of well-being for the working-class.

o o o

We see then that the grounds upon which our statistician bases his contentions are not relevant. The income tax returns will increase the more rapidly as the workers’ wage goes down and the savings in the Savings Banks are not appreciably affected when the working-class is at its lowest level of unemployment,

o o o

The reverse of the contention we are criticising is that the least benefit from our increasing powers of production go to the property owning class. The poor capitalist we are often told is not doing nearly so well as is the man who works for him, but we never see any haste on the part of the capitalist to exchange.

o o o

We are told by Sir Robert Giffen and other “authorities” that the capitalised value of the wealth of this country has increased in the last 40 years from £6,000,000,000 to £14,000,000,000. According to this statement the capital of the country has increased during the last 40 years at an average rate of £200,000,000 a year.

o o o

Here we have a spectacle of capitalist poverty ! The capitalist draws his revenues from industry—in essence, from the unpaid labour of the working-class. With it he satisfies his every whim, luxury, vice, necessity, and comfort. And even then he has an immense sum amounting to two hundred millions of pounds sterling to apply in further investment.

o o o

The worker, on the other hand, is enjoying with the progress of science and invention a speeding up of the machinery he minds, an intensification of his labour, a dwelling in the slums, polluted air in the streets, vitiated air in the factories. Clad in shoddy clothing manufactured for his sole use, fed on the poorest of food, he is told that the income tax returns show his growing prosperity.

o o o

The worker has a grim sense of humour but this must be too much even for him. Not always will he be content to produce the whole of the wealth and get for himself a beggarly pittance. He will one day awake to the fact that a parasitic class of rich idlers is fattening upon the results of his labours and he will then show the stuff that’s in him.

o o o

When that time comes woe betide the capitalist class who have robbed him and woe betide the apologists of that capitalist class—the economists and the statisticians unable to rise above their own class interests. The day is rapidly nearing when those who produce the wealth will control its production and its distribution and may one of those who lives to see that day be—

Economicus.

This taxation business (1978)

From the July 1978 issue of the Socialist Standard

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.

Edgar Hardcastle

Utopia—on easy terms. (1927)

From the August 1927 issue of the Socialist Standard

Our masters, despite their cant about our improving conditions, well understand the remote possibilities of the workers being able to save from the meagre portion of their product returned in the form of wages. Inviting the workers to become shareholders on the instalment system is a grim joke. A scheme has been introduced by the Southern Railway with this objective :—

“For a workman to secure £10 worth of stock it is necessary for him to pay one instalment of 1/6 and then for 77 weeks 2/6 will be deducted from his pay” (“Daily Chronicle,” May 23, 1927).

Assuming “regular work,” after 15 years’ saving against the rainy day, he will have accumulated sufficient to bring him in at (say) 5 per cent. the sum of 2s. per week. It is to be hoped that, even if he and the job last, he does not encounter a heavy shower, otherwise his “rainy day” savings will be a “wash out.” Some may protest that large numbers of the workers do “get on.” If they do, then why do they not figure as income tax payers? Including the body of professional and other workers who pay income tax as an item in the cost of living :—

“The numbers of liable persons paying income tax in the years in question are estimated at 2,400,000 for 1924-25 and 2,300,000 for 1925-26” (Answer given by Mr. Churchill to a question in the House of Commons—Hansard, April 12, 1927).

Here is evidence of the capitalist myth that wealth is becoming more evenly distributed. It shows two extremes. Out of the ever-increasing wealth produced by the working class alone, the wages system means for them that they can never obtain, as a class, more than that which reproduces their slave condition. We have demonstrated it often enough ; a capitalist Chancellor of the Exchequer lends additional support to our claim.

W. E. MacHaffie

Whose Tax is it Anyway? (2012)

James Gillray, William Pitt's Policy of Income Tax (1799)

A Short Story from the March 2012 issue of the Socialist Standard

(The Socialist Standard Archives Department recently came across a hand-written document concerning William Pitt the Younger, Prime Minister and inventor of income tax, which appears to be part of the memoirs of some obscure 18th century official. We are unable to say whether the document is genuine, but the argument contained in it is plausible and may well have taken place in some form. We reproduce it here because it has some bearing on current debates about what ‘public money’ is used for.)

A Capital Notion

Being a true account of intercourse lately passed between Mr Pitt and one Edgar Crutchley, Comptroller in the Office of Customs and Excise, Whitehall, June 1796.

Mr Pitt (afterwards WP):          I am informed that you wait upon me for purposes of discussing the war with our French brethren?

Mr Crutchley (EC):      Indeed sir. I have an idea how you can raise the money to fight Napoleon.

WP:      Pray enlighten me, I am all ears.

EC:      Well, you know that whereas it is always easy to tax the poor, to separate the widow from her mite, as it were, the rich manage to squirm out of every tax you can concoct, and thus deprive the state of any meaningful revenue?

WP:      Ah, t’is ever so, more’s the pity.

EC:      You tax windows, they brick them up; you tax shoe buckles and hair powder, they adopt new fashions; you tax offices, they change the names…

WP:      Yes, yes. The gentle classes are most assiduous in such evasions.

EC:      And when you try to tax their land and business income directly, they cry pompously about invasion of privacy and then hide their money.

WP:      Well? Get on with it, man. Now you are taxing my patience.

EC:      There’s a form of purchase only the rich can make, and one they can’t hide or change like their wigs – that is when they hire workers. What if you create a tax on wages and force the workers, not the employers, to pay it?

WP:      Tax the workers? What nonsense. Where will they find the money to pay a tax? They are destitute, with scarce enough to live on. Indeed, they are sucked as dry as they can be sucked!

EC:      Precisely sir. So wages will have to go up, won’t they? It stands to reason.

WP:      You mean, visit upon workers an insupportable tax which employers must needs supply the money for? And the point of this device, my good man?

EC:      The point is, workers can’t get out of paying the tax, and employers can’t get out of increasing their wages to pay for it, or else they’ll get no workers. So it’s a tax on the rich, not by the front door but by the servants’ entrance, if you like. One they won’t be able to evade like they evade everything else.

WP:      I suppose it might settle present accounts with Boney. But I could hardly make such a thing permanent. There would be pandemonium in the House, by God.

EC:      Well then, sir, call it a temporary measure. Like as not, a man of your noble intellect can find reasons to keep introducing it every year. One day you may even make it permanent, and your revenue thus secured.

WP:      Hmm. T’is true, an enforceable tax on the rich would answer our lamentable want of funds. We could have a proper civil service at last, an efficient administration of the state. Ah, but I perceive a problem.

EC:      Problem, sir?

WP:      The labouring classes will think that they are paying this tax, out of their own money, will they not?

EC:      Yes sir, they certainly will believe it to be so. It will even say so on their payslips.

WP:      Why then, they will think themselves entitled to parlay every purpose we put this tax money to. They will say that our institutions are really their institutions. We shall have a caterwauling mob every time we use the money to finance a war, build a government office, or bail out a bank. We shall have their damnable interference at every transaction, as if they were the true holders of the purse strings!

EC:      That may be, sir. But you shall have a reliable source of revenue from the rich, which is no small thing. And it may be that a working class which believes itself to be the source of state money will tend to ally its interests with that state, instead of being arraigned as outsiders against it.

WP:      Can such a working class, thus flattered above its degree, be kept in due station, I wonder?

EC:      That is for history to unveil, sir. I merely cast accounts in the present. But I believe a class which thinks itself already in power will see no need to seize power. By such grand illusions is true power maintained.

WP:      Are they all as smart as you in the Treasury? I shall have to watch out.

Transcribed by PJS