Socialism and sales taxation

[Die Neue Zeit]

This is what I have so far (and under a different heading) on the question of sales taxes:




“Undoubtedly the victorious proletariat would also make fundamental reforms in taxation. It would endeavor to abolish all the taxes that today rest upon the laboring population – first of all the indirect ones that increase the cost of living.” (Karl Kautsky)

At the turn of the 20th century, Kautsky made the above remarks in one of his most important theoretical works, The Social Revolution. Although there is a suggestion of cynicism regarding the abolition of indirect and other regressive taxation under bourgeois capitalism, it was nevertheless a universal minimum demand of the worker-class movement since 1848, when the programmatic Demands of the Communist Party in Germany called for “abolition of taxes on articles of consumption.”

Contrast that to the existence of such taxation regimes in the welfare states par excellence known as Denmark, Norway, and Sweden. Each of those states, which are derided as “socialist” by right-wing groups, has a value added sales tax rate of 25 percent on most goods and services, a rate that is comparable to what has been and is being proposed by American right-wing groups through their “Fair Tax” lobbying (replacing income taxation with a sales tax of about 30 percent, after token rebates for the poor).



So how do we deal with sales taxes from the perspective of a maximum program such as below or even a minimum program such as above?

Paul Cockshott made an argument for the reintroduction of regressive poll taxes and against sales taxes (Lassallean "full value" on labour credits/"vouchers" but paying sales taxes for the common funds - products are priced at more than "full value"):

http://gesd.free.fr/cockshot.pdf


We have advocated a fixed poll tax rather than a proportional income tax (Cockshott and Cottrell, 1993). This advocacy is a secondary issue but we see it as having certain advantages. A poll tax maintains a high incentive to work, since workers are paid the full value of their product at the margin; at the same time it emphasizes the general duty to perform work for the community before work for oneself. (In the absence of significant income differentials, the redistributionist argument for income taxes in a capitalist economy is lacking.) Whatever tax regime is used by a communist economy, it is essential that persistent shortfalls in tax collection do not occur; there must be some mechanism to bring tax collection and government expenditure into balance.

http://21stcenturysocialism.blogspot.com/2007/09/venezuela-and-new-socialism.html


In their book Towards a New Socialism, Cottrell and Cockshott argue that the Soviet model of taxation had several drawbacks, which, in the long run, contributed the final collapse of the Soviet socialist economy.

The use of indirect taxation, such as turnover or value added taxes, and a-fortiori a reliance on profit income, puts the state in the position of being a collective capitalist vis a vis the workers.

[...]

The German term for such taxes Mehrwertsteur translates incidentally as 'surplus value tax', encapsulating very well what its economic function is from the standpoint of marxian political economy.

Thoughts?

[h9socialist]

For so long as the monetary system is around, the only fair taxes are the "heavily progressive income tax," the "inheritance tax", and "taxation on property." Sales taxes and value added taxes hurt lower income groups the hardest. The only time there should be consideration of "before the point of sale" taxation is on items such as cigarettes, which you probably want to discourage the use of. Otherwise, taxation should be "after the point of sale" and very progressive.

[Die Neue Zeit]

Don't forget land value taxes (http://www.revleft.com/vb/progress-poverty-and-t100661/index.html), too (as opposed to more regressive property taxes).

[MarxSchmarx]

Sales taxes collected by merchants from consumers at the point of purchase should be abolished. They are regressive and serve no valid purpose except as another insidious revenue stream for the beast, as it were.

On a broader note, with the possible exception of taxing large inheritances, it's not entirely clear why individuals should have to pay taxes at all. Even under socialist development stages. One of the early goals, it would seem to me, would be to keep the core services like fire departments and parks funded by the "profits", if it were, of the public enterprises. This is key, because it immediately facilitates the introduction of a relatively planned economic system.

Another reason is that it facilitates the communalization of production. Although this can be treated as "taxes" if we view the lost income of individual workers that has to be spent from the organization's profits, such a collective responsibility based on industry as a whole is important.

Indeed, an historical understanding of why we have the taxes we do is crucial to any analysis of future tax policies. The shift of the burden for the funding of public goods from institutions to individuals facilitated the free movement of labor and the further atomization of individuals. Moreover, it helped reinforce the myth of each individual as a free person who could sell their labor and do so independently of others.

Similarly, the point of this Colburn and Cockshott about how this contributed to the problems of the soviet system is well taken, but at the end of the day it is pretty far down the list of the systemic economic, political and bureaucratic shortcomings of the soviet model. Again, an historical analysis, I highly suspect, will show that soviet taxation developed in response to the bureaucratic state becoming the de facto monopoly capitalist - rather than the other way around. To wit, consider their criticism of the "a foreteriori reliance on profits" for taxation. This seems premature, not least because the destruction of workplace democracy in the USSR destroyed any clear checks on the use of this taxation, and all but ensured that bureaucraticapparatchniks would seek to serve their masters in the dictatorial state.

As far as what to do with private corporations and businesses during the early stages of socialist development, it would probably help to tax corporate profit rather than the income of even the highest paid employees. Indeed, one could institute a scheme where the tax burden on corporate profit declines as the renumeration within the corporation becomes more equitable, in effect constituting a variation on the progressive income tax, but which is implemented at the organizational level for the aforementioned reasons. My guess is that rent from land could be collected similarly, with the landlord serving as a sort of 1 person company. As far as property taxes go, these too should be abolished.

Thus, anything that could be done to shift the tax burden from individuals to organizations should be key.

[h9socialist]

Comrade MarxSchmarx --

I do have one disagreement -- taxing corporate profits (at least in the US) is not nearly as potent a strategy as taxing upper incomes and capital gains. Corporate profits are never much more than 5% or 6% of GDP. And in a recession they'll be lower than normal. Besides in a socialist transformation we want to be transferring corporations to public ownership, making taxation irrelevant.

Howevere, in the past generation we have seen vast fortunes made without any particular benefit to overall production. The income generated in the financial economy is the real goldmine to tax -- and that will be a key attack on capitalism in the early stages of a socialist transformation.

[MarxSchmarx]

Good point; however, we may be talking past each other. By "corporate profits" I include everything that constitutes the surplus value of labor.

And what are "capital gains" than a disbersment of the surplus value of labor to different capitalists by any other name?

[Die Neue Zeit]

The Abolition of Indirect and Other Class-Regressive Taxation

“Undoubtedly the victorious proletariat would also make fundamental reforms in taxation. It would endeavor to abolish all the taxes that today rest upon the laboring population – first of all the indirect ones that increase the cost of living.” (Karl Kautsky)

At the turn of the 20th century, Kautsky made the above remarks in one of his most important theoretical works, The Social Revolution. Although there is a suggestion of cynicism regarding the abolition of indirect and other regressive taxation under bourgeois capitalism, it was nevertheless a universal reform demand of the worker-class movement since 1848, when the programmatic Demands of the Communist Party in Germany called for “abolition of taxes on articles of consumption.”

Contrast that to the existence of such taxation regimes in the welfare states par excellence known as Denmark, Norway, and Sweden. Each of those states, which are derided as “socialist” by right-wing groups, has a value added sales tax rate of 25 percent on most goods and services, a rate that is comparable to what has been and is being proposed by American right-wing groups through their “Fair Tax” lobbying (replacing income taxation with a sales tax of about 30 percent, after token rebates for the poor). Proponents of indirect taxation based on consumer goods and services point towards tax collection efficiency in the form of less tax avoidances and evasions by non-workers, but who between the average worker and the more well-off non-worker spends more on consumption relative to income?

Regressive taxation does not stop at indirect taxation based on consumer goods and services. Every state that provides unemployment insurance appropriates funds for such (or for more dubious budgetary purposes, as affirmed for example by the Supreme Court of Canada) from direct taxes on workers known as payroll taxation. The notorious Social Security and Medicare payroll taxes paid by workers in the United States are merely a more extended form of payroll taxation. In European countries, Japan, and elsewhere, television licenses are levied like poll taxation upon the populace in order to fund public broadcasting. Last, but not least, state-run lotteries are a very direct and regressive form of taxation based on workers consuming bourgeois-capitalist overestimations of class mobility, as acknowledged even by right-wing “Tax Freedom Day” think tanks such as the Tax Foundation based in Washington, DC.

So, in regards to the much-needed abolition of all indirect taxation and other class-regressive taxation based on labour and on consumer goods and services, does this reform facilitate the issuance of either intermediate or threshold demands? In 1866, while preparing for the first congress of the International Workingmen’s Association, Marx wrote that “no modification of the form of taxation can produce any important change in the relations of labour and capital.” Notwithstanding the aforementioned proposal for economic rent of land being already an exception in his own time, economic developments over the past forty to fifty years have brought forth hints of another exception, and have demonstrated that not all indirect taxation is regressive. In August 1971, the United States abandoned the international gold standard known as the Bretton Woods system. In response, US economist James Tobin dealt with international currency stability by reviving a particular taxation measure suggested by the classical economist John Maynard Keynes in his The General Theory of Employment, Interest and Money (despite this tax measure eventually being dubbed the “Tobin tax”):

It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive [...] The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

The adoption of this taxation proposal by the various decentralized social movements is but a mere echo of the more radical sentiments of pre-war European Social Democracy with regards to taxation, the basis of the socio-income democracy elaborated upon earlier in this chapter: that improvements in the condition of the working class could and should be attained by shifting all tax burdens currently on labour (directly or through consumption) towards capital.

Does this reform enable the basic principles to be “kept consciously in view”? Combined with socio-income democracy and with the aforementioned proposal for economic rent of land, this reform again poses the questions of transnational class struggle (namely, the concern that other bourgeois states will not implement this without a struggle) and worker control over the economy. To quote Marx, it “prompts therefore every individual to control the governing powers, while indirect taxation destroys all tendency to self-government.”



REFERENCES:



The Social Revolution, Volume II: On the Day After the Social Revolution by Karl Kautsky
[http://www.marxists.org/archive/kautsky/1902/socrev/pt2-1.htm]
[http://www.marxists.org/archive/kautsky/1902/socrev/pt2-2.htm]

Demands of the Communist Party in Germany by Karl Marx and Frederick Engels [http://www.marxists.org/archive/marx/works/1848/03/24.htm]

Instructions for the Delegates of the Provisional General Council: The Different Questions by Karl Marx [http://www.marxists.org/archive/marx/works/1866/08/instructions.htm]

Government broke law on EI financing in three years: top court by CBC News [http://www.cbc.ca/canada/story/2008/12/11/scoc-eu-ruling.html]

State-Run Lotteries as a Form of Taxation by Alicia Hansen [http://www.taxfoundation.org/research/show/1126.html]

The General Theory of Employment, Interest and Money by John Maynard Keynes
[http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch12.htm]

[JJM 777]

Talking about a Socialist state, without any reference to the current Capitalist societies, the state doesn't need any "taxes", because it is the owner of all companies, so it automatically receives the profits of all companies. In Capitalism the share taken by the state from profits of a company is called "tax", because the state is not the owner of the company.

Taxing products and services (VAT) is not generally beneficial for the people, because it punishes people for consuming the produced goods. However, in some cases the situation might be such that we have more ecological and less ecological products (for example, durable steel forks and disposable plastic forks), and we don't want to totally ban the less ecological products, but we want to reward the use of the more ecological products and punish the use of less ecological products. In such cases it might be useful to have an environmental tax (etc.) on some products.

Also if the Socialist state has trade with Capitalist states, the products imported from Capitalist states might be subjected to import taxes, to encourage the use of local products which create employment to the local people.