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Full Marx Who reaps the benefits of taxation: capital or labour?

How is it the very richest pay so little tax while the rest of us are burdened with the cost of our own repression? The MARX MEMORIAL LIBRARY asks what is to be done?

A POPULAR view is that we all benefit, and there’s some truth in that.  

As long as we live in an economy dominated by the market, then taxation (of wages, profits, or capital) will be an essential element in the process of delivering the “social wage” — education and health services, public infrastructure as well as more dubious and contested elements of public expenditure such as “defence.”  

At a more subtle level, it can be maintained that to the extent that (as Marx argued) wages under capitalism always tend to fall to the minimum level required for the social and biological reproduction of labour, then the “costs” of taxation in the last analysis fall on the capitalist rather than on the working class. 

From this perspective, taxation is a deduction from surplus value. 

But the reality is that (“legal)” tax avoidance (let’s leave illegal tax evasion to one side) mean that today many companies — and many of the rich — pay little or no tax.  

The major source of British tax revenue is income tax (around 29 per cent of all tax receipts), followed by national insurance (at 19 per cent), value added tax (VAT, at 15 per cent) corporation tax (9 per cent) and fuel duties (5 per cent) then at a local level, council tax (5 per cent) and business rates (4 per cent).  

Other taxes — from tobacco and alcohol duty, through motor vehicle road tax to stamp duty and inheritance tax, together amount to less than 15 per cent of total revenue.  

Most debate takes place around income tax. This is often claimed to be a progressive tax, since the rich — in theory -— pay proportionally more than those on low incomes.  

Income tax during the second world war peaked at 99 per cent for the very highest earners. But those top rates have been continually reduced; to 60 per cent by Margaret Thatcher in 1979 and successively to its current rate of 45 per cent.

At the same time, the basic rate of tax has also been reduced but not so spectacularly, from around 33 per cent in the decades immediately after the second world war to its current rate of 20 per cent.  

For a relatively brief period — from 1999 to 2008 – the starting rate of income tax was just 10 per cent.  

Variations in tax rates have always accompanied other changes; for example Labour’s “10p” rate was introduced supposedly to encourage people who would otherwise be unemployed to work, alongside the replacement of the anomalous married couples’ allowance by a child tax credit.  

Its abolition was highly contentious and was one (additional) reason for Labour losing the 2010 election. 

These reductions, justified in the name of providing “incentives” (though most people on the basic rate of tax have no choice but to work) have progressively shifted the proportion of total tax paid to those on the basic rate of tax. Indirect taxes have played a significant part in this.  

Perhaps the clearest example is VAT, the third largest source of government income after income tax and national insurance (NI). 

Income tax and NI are direct taxes on income, but VAT as an indirect tax is in some ways “hidden” because it is paid by the business seller but it is the end consumer who ultimately bears the cost.

It is also a regressive tax because the poorer you are the more you pay as a proportion of your income.  

VAT was introduced in 1973 on Britain’s accession to the European Economic Community (EEC), at a standard rate of 10 per cent.  

It replaced purchase tax which was applied to the wholesale price at the point of manufacture, not at the point of sale, and varied according the degree of “luxury” of each commodity.

Like purchase tax, VAT varied with each budget. It was raised under Thatcher in 1979 by her chancellor, Geoffrey Howe, from 8 per cent (12.5 per cent on “luxury” goods) to a single rate of 15 per cent. 

It was raised again in 1991 under John Major to 17.5 per cent and again in 2011 under David Cameron by what he described as George Osborne’s “emergency budget” to 20 per cent.  

At the same time he cut the top rate of income tax from 83 per cent to 60 per cent on “earned” income and reduced corporation tax.

Corporation tax, the fourth largest source of tax, is significantly lower than other sources, because so many companies simply don’t pay it.  

Some of the largest companies — Apple, Amazon, Google, Facebook, etc — pay little or no corporate tax in Britain despite making huge profits.  

Amazon’s most recent tax bill was a mere £1.7million — less than 0.0002 per cent of its UK sales of almost £9 billion and a fraction of its main shareholder Jeff Bezos’s estimated wealth of over £100bn.  
Similar stories could be told of most other household names.  

Thames Water supplies water to and treats waste from around 15 million customers — over a quarter of the UK population.  

Formerly a public utility, it was privatised in 1989 and between 2006-2017 was operated through a labyrinth of companies, some registered in tax-free havens like the Caymans, owned by Australia’s Macquarie Bank.

During this period, returns to its investors averaged between 15 per cent and 19 per cent a year.  

Contrived debt ballooned to £10bn and interest payments swelled the charges for customers and profits for its associated companies who received some £3.1bn in interest over this period — dwarfing a record fine imposed in 2017 of £20m for leaks of untreated sewage.  

Tax relief on interest payments reduced corporate tax liability so that from 2007 to 2015, Thames Water paid just £100,000 in British corporation tax.

This situation has, ironically, been systematically facilitated by politicians (most of whom are in business) and government agencies, including HM Revenues and Customs, which has shed staff and closed most of its offices where companies and individuals seeking to pay their “fare share” of tax could previously go for advice.  

At the same time, HMRC set up a specialist unit to deal with “high net worth individuals” and an estimated 6,500 people each worth £20m or more were assigned “customer relationship managers” to manage their tax affairs.  

Tax simply uncollected (not evasion) was estimated in 2013/4 to be between £34bn and £120bn.

Dave Hartnett, the head of HMRC during this period, arranged “sweetheart deals” with firms owing tax on the basis that this was “non-confrontational” and cheaper than going through the courts.  

One of Hartnett’s deals involved granting immunity to HSBC’s bankers for any crimes they might have committed for tax fraud in Switzerland.

After retiring from HMRC in 2012, Hartnett went on to be a tax adviser — to HMRC. 

Although around one-third of all wealthy individuals are at any given time under investigation for possible tax evasion, HMRC completed only 72 fraud investigations in the five years to 2016 and only one of these resulted in a successful criminal prosecution.  
The problem is not limited to Britain; Credit Suisse, Switzerland’s second biggest bank, was fined $2.6bn (£2bn) in 2014 for helping wealthy US citizens evade taxes (it also settled tax dodging cases in Italy and Germany, though not in Britain).

It is still under investigation for facilitating tax evasion and money laundering following co-ordinated searches (March 2017) on its London, Paris and Amsterdam offices.  

And most recently, a French court imposed a record €3.7bn (£3.3bn) fine imposed on the Swiss banking giant UBS for tax fraud. 

It is important to note that these cases relate only to illegal operations. Much of the tax avoidance activity of the financial services industry is perfectly legal — tax avoidance is endemic to capitalism.

As Labour’s shadow chancellor John McDonnell declared, “the Tories have run a rigged economy where the super-rich pay less and less in tax while earnings for average working households are still below their level of a decade ago.”  

And they’re determined to keep it that way. In March the government pulled a crucial Brexit financial services Bill in order to avoid an amendment that would have required Jersey, Guernsey and the Isle of Man to keep a public record of major company share ownerships.  

Around a third of British billionaires have moved to tax havens and they and their companies have made £5.5m in political donations to the Conservative Party, a million of this just prior to the 2017 election — including £500,000 from Lord Ashcroft (a former deputy chairman of the Conservative Party, the 95th richest person in Britain and a “tax exile” based in Belize). 

The donation was accepted despite a 2009 law (which has never been enacted) banning party donations of more than £500 from anyone not resident or domiciled in Britain for tax purposes.  

Many more lesser millionaires (including Tory politicians) also have shares in dodgy companies which pay little or no tax.  

The question therefore is (to coin a phrase) “what is to be done?”  The massive asymmetry of taxation is, of course, nothing new.

In Germany during the revolutions of 1848 the popularly elected parliament was prevented from assembling. It responded by issuing a decree declaring that the government had no right to collect taxes.  

When the decree was published in Marx’s paper, the Neue Rheinische Zeitung, Marx added, in a serious but joking fashion: “From today, therefore, taxes are abolished. 

“It is high treason to pay taxes. Refusal to pay taxes is the primary duty of the citizen.” 

Marx was prosecuted but acquitted after arguing that it was not illegal to promote tax resistance against an illegal government.  

Later, in Capital, Marx pointed out how a significant proportion of taxation goes towards meeting interest charges on government borrowing (in Britain today this is about 8 per cent of total tax revenue) and he emphasised the role of that debt in the “capitalisation of wealth and the expropriation of the masses.” 

“Overtaxation,” he argued “is not an incident, but rather a principle.” 

That was at a time when there was little welfare provision, no state education or health service, prompting Marx to declare that “taxes are the economic basis of the government machinery and of nothing else.” 

So alongside the functions we accept, we also pay for the repressive aspect of the state as the organ of the ruling class — so that working people are hit with a double whammy — effectively they pay for their own repression.  

Key lobbies in challenging social expenditure include the “Taxpayers’ Alliance,” regularly interviewed on the media and paraded on programmes like BBC’s Question Time as representing all taxpayers but in fact a lobbying company (registered as the Taxpayers’ Alliance Ltd).

Without any members, grassroots or otherwise (“joining” is simply a matter of adding your name to their email list), funded by the rich and powerful — the same businesses and individuals who regularly donate to the Tory Party.  

At the same time, reductions in tax as a proportion of national output have provided the excuse for cutting the social wage — the services provided from public funds, from the NHS, schools and colleges, to public parks and libraries — under the excuse of “living within our means” and austerity.  

And the gap between income and expenditure at a national and local level has been addressed by selling off public assets — our previously socially owned industries, utilities, town halls, post offices, playing fields, libraries, land, forests and farms — and by yet more borrowing, with the burden of interest repayments falling on the people who most benefit from public services.  

Today of course, it is the rich who “refuse” to pay taxes — ordinary people have little choice — and securing a fair and transparent tax regime will be a major challenge for a socialist government.  

For Marx, demands for a progressive tax regime — one that has a redistributional effect, enforced and policed with full transparency — were something that should be supported by all socialists as a transitional demand, but represent no long-term solution to the exploitation inherent within capitalism.  

And a refusal to pay taxes (something large corporations and the rich have been doing for a long time and continue to do, very successfully), while it might bring a government down, is not sufficient to change a political system and, under a Labour government, would prove disastrous.  

Devising — and implementing — a proper tax system will be vital to a Labour government inheriting an economy broken by the destruction of its industrial base, crippled by Brexit and dominated by international finance capital.  

A Labour government will need to invest heavily in education, healthcare, housing and welfare, in public ownership of utilities, transport and a revived agricultural and manufacturing base.

Policies on taxation will need to be seen as fair, transparent, and, above all, enforced.  

The Spiders’ Web, a film about Britain’s offshore tax havens, the City of London and the complicity of the state in corporate tax avoidance,  can be viewed here: tinyurl.com/SpidersWebTax.

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