How was public assistence provided for in socialist countries?

[RadioRaheem84]

Without taxes? North Korea ended their tax system in 1977 and Albania also had no taxes.

Can someone explain how these nations were able to house, feed, educate and provide health care for millions without taxes?

That would be something to bring up to many right wingers who think all these social services would drain the economy.

[Die Neue Zeit]

Albania did have taxes: the turnover tax. According to Paul Cockshott, the problem is that this was like VAT taxes today.

[Aurorus Ruber]

I believe the funding for public services in socialist countries came from state-owned means of production for the most part. Since the state owned pretty much all the factories and shops and so forth in the country, it would get any income made by selling goods from those facilities. Such countries would not really need much in the way of taxation simply because no private businesses existed for which the state to tax.

[Paul Cockshott]

The state levied a tax on the sales of goods by state enterprises which was used to fund free social services. Taxes on private incomes were either low or non existent.
This policy was rather different from that proposed by Marx who basically favoured what amounted to income tax as the means to fund social services.

[Vladimir Innit Lenin]

Surely it would have been more beneficial to fund social services via an income tax, since this would be far less volatile, both year-on-year and over the course of each economic cycle, than essentially a group of sales/'corporate' taxes, as the income of enterprises and business organisations will always be more volatile than per capita income.

[Tim Cornelis]

As workers we pay part of our income we earn to the capitalist so we are allowed to work with the means of production he owns. The income we pay to the capitalist (profits, or in Marxist terminology, surplus value) is not taxation.

In North Korea the means of production are owned by the state, so the workers pay much of their income to the owner of the means of production—the state—so they may work with the means of production. In this sense there isn't a direct taxation.

I suppose this is the basis of their claim that there is no taxation, but I'm skeptical of that.

In any case, I love saying to minarchists who say taxation is theft "why don't you go to North Korea then?", because it's completely arbitrary to say that the state is allowed to have a monopoly on police and courts, but not on healthcare and other services. If the state is morally allowed to have a monopoly on police and courts (as in a minarchist society) there is no reason why the state is not morally allowed to have a monopoly on every single industry—as is the case in North Korea—as long as they don't tax people.

[Die Neue Zeit]

The state levied a tax on the sales of goods by state enterprises which was used to fund free social services. Taxes on private incomes were either low or non existent.
This policy was rather different from that proposed by Marx who basically favoured what amounted to income tax as the means to fund social services.


Surely it would have been more beneficial to fund social services via an income tax, since this would be far less volatile, both year-on-year and over the course of each economic cycle, than essentially a group of sales/'corporate' taxes, as the income of enterprises and business organisations will always be more volatile than per capita income.

Corporate income taxes are volatile, too. :confused:

Meanwhile, I'm sure that the main argument behind the turnover tax was the same as today's arguments for VAT and sales taxes: they're more efficient to collect than income taxes, since the latter is subject to "tax planning" (up to and including tax evasion).

[Kadir Ateş]

Oh here we go. Why not question whether or not they were even "socialist states" anyway? Was waged labor abolished? Was money non-existent? Was exchange still going strong?

[RadioRaheem84]

Corporate income taxes are volatile, too. http://www.revleft.com/vb/public-assistence-provided-t166412/revleft/smilies/confused1.gif

Meanwhile, I'm sure that the main argument behind the turnover tax was the same as today's arguments for VAT and sales taxes: they're more efficient to collect than income taxes, since the latter is subject to "tax planning" (up to and including tax evasion).


The NK way seems much more viable to maintain social services than income tax.

I am sure it's not just NK or former Albania that does this too. I am sure that there is a state owned enterprise out there that has a few subsidaries, private ones, that the State then uses to fund social services.

I read somewhere that a French nationalized company owns a couple of priviate electric service subsidaries in the UK and it uses some of those proceeds to fund some social services in France.

On a grand scale can the Albanian or NK model really work?

Why did Marx prefer an income tax?


Oh here we go. Why not question whether or not they were even "socialist states" anyway? Was waged labor abolished? Was money non-existent? Was exchange still going strong?


I think my main point for starting this thread was to diminish the canard that social services can only be maintained through income taxation, which the rich use as a class warfare tactic that we the poor are robbing them to feed ourselves.

[Paul Cockshott]

Corporate income taxes are volatile, too. :confused:

Meanwhile, I'm sure that the main argument behind the turnover tax was the same as today's arguments for VAT and sales taxes: they're more efficient to collect than income taxes, since the latter is subject to "tax planning" (up to and including tax evasion).

Ease of collection may have been an issue, but tax avoidance is not likely to be a serious problem in an economy without any significant number of private traders. PAYE in the UK works very efficiently for the vast majority of wage earners, it is those with property income that avoid tax.

The traditional argument against indirect taxation by marxists has been:
Indirect taxation falls disproportionately on those with lower incomes

If a socialist economy had completely equal income that might not be an issue.

But in a socialist economy that uses a turnover tax you have a situation where the apparent cost of labour is lower than its real cost. Means of production used by a state factory have the turnover tax included in their nominal cost, so a machine that cost say 10,000 hours to produce might be priced at the money equivalent of 15,000 hours. But 13,000 hours of direct labour by the workers in the factor appear to cost less than this. So although it may be socially more efficient to use a machine requiring only 10000 hours of labour, the factory will think it more efficient to use the direct labour. This acts as a drag on the use of new machinery and slows down the rate of improvement in productivity.

There is also the political point that the tax is not transparent or so amenable to open democratic debate as the income tax scheme Marx proposed in the Critique of the Gotha Programme.

[Paul Cockshott]

Marxists have had no compunction about examining surplus extraction in propertarian
societies like slavery and capitalism, but they have been more reticent about
applying the same analytical tools to socialism or communism. In general they did not
even think to ask the relevant question—how is the necessary surplus to be extracted?
It was a question that presented itself immediately to the unprepared Bolsheviks on
taking power, and they came up with a series of improvised responses—expropriations
in the short run, a tax in kind on grain, manipulation of relative prices of industrial
and agricultural goods in the mid 1920s—before settling on a turnover tax on state
enterprises as the stable and workable solution.
From the establishment of the planned economy in the USSR up to the time of
Gorbachov, the turnover tax was the main the juridical form under which the state was
financed. In capitalist language this was equivalent to meeting most state expenditure
(new investment in infrastructure, education, welfare, defence, scientific research,
pensions and so on) out of the profits of nationalised industries. Another big source of
revenue was the vodka tax. Together these provided a stable tax base until Gorbachov’s
teetotalism campaign, and his simultaneous decision to allow enterprises to retain most
of their profits, destabilised state finances and debauched the Rouble.
But these taxes were, as Keynes would have realised, just an administrative measure
necessary to maintain monetary stability. The taxes neither ensured the production of
a surplus nor did they determine its magnitude. The real magnitude of the surplus was
determined by the plan, when it laid down how much social labour was to be allocated
to producing consumer goods and how much was to be allocated to other activities.
Once the plan had decided how many workers were to build new steel plants, new
railway lines, mines, tanks and bombers, the ratio of surplus to necessary labour time
was given. The production of a surplus product at the societal level was the result of
conscious and explicit political decisions. The socialist state, unlike the “nightwatchman”
state of capitalist society, could not be content simply with collecting taxes on
an autonomously produced surplus. The state had to turn itself into a mechanism for
actually producing and directing that surplus. This is the inner logic of the socialist
mode of production, its basic law of motion.

[Die Neue Zeit]

Ease of collection may have been an issue, but tax avoidance is not likely to be a serious problem in an economy without any significant number of private traders. PAYE in the UK works very efficiently for the vast majority of wage earners, it is those with property income that avoid tax.

The traditional argument against indirect taxation by marxists has been:
Indirect taxation falls disproportionately on those with lower incomes

If a socialist economy had completely equal income that might not be an issue.

Comrade, I wasn't arguing in favour of turnover taxation. There are a few other kinds of taxes that have ease of collection but are way more transparent (re. Marx). Like you and I have commented on before, land value taxation is one. If set high enough, it can replace all property taxes (taxes on land improvements), all consumer sales and VAT taxes, all payroll taxes funding unemployment insurance and other social security, and all income taxation for "hypothetical" low-income workers.

There are also income tax withholdings that are easy to collect, though of course they may be subject to tax avoidance a few months down the road.


But in a socialist economy that uses a turnover tax you have a situation where the apparent cost of labour is lower than its real cost. Means of production used by a state factory have the turnover tax included in their nominal cost, so a machine that cost say 10,000 hours to produce might be priced at the money equivalent of 15,000 hours. But 13,000 hours of direct labour by the workers in the factor appear to cost less than this. So although it may be socially more efficient to use a machine requiring only 10000 hours of labour, the factory will think it more efficient to use the direct labour. This acts as a drag on the use of new machinery and slows down the rate of improvement in productivity.

Who would have thought that the turnover tax might actually have encouraged the hoarding of labour? :huh:

[Paul Cockshott]

Who would have thought that the turnover tax might actually have encouraged the hoarding of labour? :huh:

Anyone who had read volume 1 of capital closely should have realised it.

[Die Neue Zeit]

Anyone who had read volume 1 of capital closely should have realised it.

In the context of the modern economy (as opposed to the historical context), now I'm not sure. Companies are invoiced sales taxes by temp agencies and other employment agencies for the labour services that they provide. Your scenario would only apply if the labour is hired in-house.

[Paul Cockshott]

In the context of the modern economy (as opposed to the historical context), now I'm not sure. Companies are invoiced sales taxes by temp agencies and other employment agencies for the labour services that they provide. Your scenario would only apply if the labour is hired in-house.

There were no temp agencies in the socialist countries.

[Vladimir Innit Lenin]

Corporate income taxes are volatile, too. :confused:

Meanwhile, I'm sure that the main argument behind the turnover tax was the same as today's arguments for VAT and sales taxes: they're more efficient to collect than income taxes, since the latter is subject to "tax planning" (up to and including tax evasion).

Corporate income taxes are volatile because profits are at the whim of the market, the stage of the economic cycle and ideas of tax evasion.

Income taxes on democratically controlled national organisations would clearly not be that volatile, as supply would be planned and could be (more) accurately forecast, hence less of a differential in the tax take, year on year.

[Die Neue Zeit]

Income taxes on democratically controlled national organisations would clearly not be that volatile, as supply would be planned and could be (more) accurately forecast, hence less of a differential in the tax take, year on year.

For the record, I'm all for personal income taxation. I'm quite against income taxation on corporations and other for-profit legal entities (just set higher tax rates on better-off individuals).

[I thank Rabble.ca's "Unionist" once again for having enlightened me on the subject over a year or two ago.]

[A Marxist Historian]

Marxists have had no compunction about examining surplus extraction in propertarian
societies like slavery and capitalism, but they have been more reticent about
applying the same analytical tools to socialism or communism. In general they did not
even think to ask the relevant question—how is the necessary surplus to be extracted?
It was a question that presented itself immediately to the unprepared Bolsheviks on
taking power, and they came up with a series of improvised responses—expropriations
in the short run, a tax in kind on grain, manipulation of relative prices of industrial
and agricultural goods in the mid 1920s—before settling on a turnover tax on state
enterprises as the stable and workable solution.
From the establishment of the planned economy in the USSR up to the time of
Gorbachov, the turnover tax was the main the juridical form under which the state was
financed. In capitalist language this was equivalent to meeting most state expenditure
(new investment in infrastructure, education, welfare, defence, scientific research,
pensions and so on) out of the profits of nationalised industries. Another big source of
revenue was the vodka tax. Together these provided a stable tax base until Gorbachov’s
teetotalism campaign, and his simultaneous decision to allow enterprises to retain most
of their profits, destabilised state finances and debauched the Rouble.
But these taxes were, as Keynes would have realised, just an administrative measure
necessary to maintain monetary stability. The taxes neither ensured the production of
a surplus nor did they determine its magnitude. The real magnitude of the surplus was
determined by the plan, when it laid down how much social labour was to be allocated
to producing consumer goods and how much was to be allocated to other activities.
Once the plan had decided how many workers were to build new steel plants, new
railway lines, mines, tanks and bombers, the ratio of surplus to necessary labour time
was given. The production of a surplus product at the societal level was the result of
conscious and explicit political decisions. The socialist state, unlike the “nightwatchman”
state of capitalist society, could not be content simply with collecting taxes on
an autonomously produced surplus. The state had to turn itself into a mechanism for
actually producing and directing that surplus. This is the inner logic of the socialist
mode of production, its basic law of motion.

This is all essentially correct, I'll just note that the vodka tax was highly controversial, not introduced until after Lenin died. Until 1922 or thereabouts, production of vodka by the state was banned in Soviet Russia, something Trotsky and Lenin were in favor of. Stalin and Zinoviev felt differently.

With the NEP you had private vodka producers, but Trotsky argued that they shouldn't be taxed, as that would base state revenues on poisoning the working class, and be a serious obstacle to anti-alcoholism campaigns.

But taxes in the USSR were just an administrative device for redistributing revenues. Being as the state owned the basic means of production, when you get right down to it if the state needed money it could always just print some.

However, given that the USSR was a noncapitalist enclave in a capitalist world, it did have to respect the laws of bourgeois economics to some degree. This would have been equally true if it was an entirely healthy workers state with not a single speck of bureaucratic deformation.

-M.H.-

[Die Neue Zeit]

This is all essentially correct, I'll just note that the vodka tax was highly controversial, not introduced until after Lenin died. Until 1922 or thereabouts, production of vodka by the state was banned in Soviet Russia, something Trotsky and Lenin were in favor of. Stalin and Zinoviev felt differently.

What's your opinion on "prohibition" of any sort?


With the NEP you had private vodka producers, but Trotsky argued that they shouldn't be taxed, as that would base state revenues on poisoning the working class, and be a serious obstacle to anti-alcoholism campaigns.

Obviously they never heard of dedicated taxes towards anti-alcoholism programs like what we see today for funding anti-drinking-and-driving and anti-smoking campaigns.