This is a chapter from the book:
The Democratic State
Chapter 6: Taxation
In order to be able to perform its tasks for its citizens, the state demands taxes from them. All citizens must give up part of their resources to finance the state functionaries, the enforcement of the law, the support of property and the promotion of wage labor. By obligating all citizens equally to pay taxes the state makes one part of them pay for the security of their property, and the other for the insecurity of their existence. As a condition for the capitalist mode of production, the state limits the wealth of private competitors. By depriving each class of part of its revenue it is only fulfilling its holy duty. The state means extra expenses for capitalist production, serving both to augment property and to ensure the reproduction of the working class responsible for this augmentation. It monopolizes part of the resources of society for the sake of private property, and therefore collects these resources in a way that corresponds to their purpose.
a) The state must raise enough revenue…
The state has the power of taxation, which means that paying taxes is no exchange deal. Taxes are “money payments which are not a quid pro quo for any particular services” (German Tax Code, Art. 1), and the state collects them by force. Everyone is obligated to file a tax return and there is an extensive apparatus for tax investigation.
The first important thing for the state when it comes to its tax laws is that it get its money. It must make its share of the wealth of society big enough to be able to perform its tasks. Since the democratic state follows the principle of equality here, too, it takes from each citizen a part of his income. This meets with little enthusiasm particularly among those whose only ‘possession’ is the income necessary for their consumption, so the state has adopted a special way of collecting income tax. It withholds it at the source. By progressive, instead of merely proportionate, taxation of income the state exploits the substantial differences in income among its citizens, showing how much money some people can spare. It also levies other taxes on earned and unearned income. The incomes of “legal persons” (corporations) are subject to a tax on profit, and the part of property not immediately involving consumption is taxed in accordance with its size, notably the tax on capital gains and the general property tax.
With its taxes on transactions the state participates directly in its citizens’ augmentation of wealth, which is the purpose of all their commercial transactions. The value-added tax shows what businessmen do when the state diminishes their profits. They include all their taxes in their calculations as costs, incorporating them into the price. They shift them, thereby giving part of the taxes they pay the same effect as the sales tax has, to burden the incomes of those who buy the end products. However, property taxes and taxes on transactions can only be shifted onto prices as far as the consumptive power of society allows, these limits being found out in competition. Tax legislation thus proves to be a means for giving new impulses to class struggle. While commercial and industrial companies shift their taxes by some additional efforts in cost-accounting and observation of the market, wage workers can combat this reduction of their incomes by increased prices only by militant action.
b) However, taxation must not foil the state’s efforts…
…to preserve property and wage labor. The state distributes the tax burdens in such a way that
- they do not destroy firms in a weak competitive position (tax privileges for special development areas, tax-free allowances, far-reaching tax exemption for agriculture, and so on);
- they do not directly endanger the reproduction of the working class (tax-free allowances, deduction for income-related expenses, homestead saving subsidies, old-age relief, etc.);
- they do not hinder charitable organizations, which are set up in the form of business enterprises, in their efforts to compensate for the necessary pauperism.
Protective measures of this kind are the main reason for tax reforms, which are accompanied by public debates about whether this or that tax amendment is equitable. Politicians also take part in these debates in order to burnish their decisions with the sheen of justice.
c) Historical remarks
Bourgeois class society needs a state which finances itself by permanently limiting this society, which it exists to serve (overhead expenses). Since the accumulation of property cannot be had without a state economically equipped to perform its functions, the state had to build up its economic capacity under conditions in which capital and wage labor were not yet fully developed. It did so by collecting taxes which secured the state its continued existence and at the same time acted towards separating labor and capital. Although the pre-capitalist state depended on trade and on the possession of wealth in its abstract form, i.e. money, it ruled a society in which economic relations were not devoted to the purpose of creating surplus value. Taxation of peasants was a part of primitive accumulation, which was supplemented by the transformation of state property into private property (see Chapter Seven). The state did this for its own sake, because it needed soldiers, etc., not because it knew that capitalism had to come about. It preserved itself, and had to change!
In tax reform debates democrats show their materialistic side. Whereas they are usually quick to transform their advantage into moral support of the state, they have no inhibitions about grumbling about the state when it wants them to prove their civic loyalty by opening their wallets. The state makes it clear that its performance is directly linked to privations on the part of citizens. That is, they must not only show good democratic conduct but also make economic sacrifices. Citizens respond by measuring the state by the rules of economic life. Everybody considers his taxes the price for services the government performs for him. The state promotes this view by explaining the fairness of taxation with reference to its good deeds whenever it goes collecting. At times it even goes so far as to levy taxes earmarked for special purposes from those who “profit” from their use (road traffic), while everyone discovers that he has made a bad deal, i.e. paid too much. In this critique of the state’s economic behavior citizens retain their false consciousness, dictated by the cost-benefit calculation of those who compete, and become radical on the basis of this consciousness. The “radical bourgeois,” whose home Marx made out to be the realm of tax disputes, is someone who does not want to change anything but only to increase his advantage under unchanged conditions. That is why the general disapproval of tax legislation does not lead to a revolution, but is merely the basis for all kinds of fraudulent tricks. Everyone cheats the state on his taxes if he can, without the least moral scruples. In fact, it is considered normal business practice to wriggle out of paying taxes, and this even provides a whole profession with a handsome livelihood. The only problem is that most people cannot make use of tax consultants, and illicit work only makes sense, if at all, in addition to a regular job (with the tax already deducted from the paycheck) because of the insurance swindle it involves. The state is aware of its citizens’ stratagems and reacts with snoops, auditors, and a tax penalty legislation which forgives a lot. Fascists and revisionists share a concern for proper collection of taxes, and demand special fiscal treatment for parasites, especially “anonymous stock corporations” and Jews.