The sweeping electoral victories of Donald Trump and the British Labour Party, have registered a shift to the right in bourgeois politics. On each side of the Atlantic, both parties have cloaked themselvess in a banner of unqualified patriotism and racism. Albeit to different degrees, they each aspire to restore the declining fortunes of their respective empires. Make America Great Again is the brashest expression of this and is echoed by Labour’s equally tawdry embrace of all the emblems of British imperial power and splendour.
In truth, these electoral gains were not so much a victory for Starmer and Trump as they were a sweeping rejection of the pro-capitalist policies of the Biden and Sunak administrations. This underlying cause was highlighted by the leftist Democrat, Bernie Sanders, who commented:
"It should come as no great surprise that a Democratic Party which has abandoned working class people would find that the working class has abandoned them.
"First, it was the white working class, and now it is Latino and Black workers as well," Sanders continued in his statement. "While the Democratic leadership defends the status quo, the American people are angry and want change. And they're right."
The same can be said for the working class in Britain where people are living on the breadline, are unable to afford a mortgage, are wracked by high rents, and have to face the choice between heating or eating,
Liberal left case for tax reform
Alongside the Labour and liberal left in the UK, Sanders has highlighted the huge wealth and income equalities that form part of the class system. At the core of their alternative to this are a range of tax reforms which they claim could have a “transformative” effect on wealth distribution. Sanders in particular is a proponent of this fake radicalism.
Across the entire spectrum of capitalist political economy, there is broad agreement that the system of taxation is by far the only “fair” way to fund public services and re-distribute wealth. A left variant of this broad view was presented in a resolution adopted by the Trades Union Congress (TUC) at its 2023 conference:
“Of course, a strong and growing economy is a prerequisite for funding decent public services and fairly rewarding our public service workers. A fair tax system is critical to that too.”
The incoming Labour government’s first budget – the second highest tax raising budget in history – was also premised on the notion of kickstarting economic growth that would inevitably deliver an illusory “grand prize” of social prosperity. In both Sander’s and Starmer’s topsy-turvy world, prosperity for the working class is entirely dependent on the good-will and fortunes of capital: give big business what it wants and more jobs, better wages and improved social services will surely follow.
Naturally, there have been no complaints from the banks, the oil magnates or water companies. For them this is yet another budget which underwrites the fortunes they continue to make from polluting our rivers, increasing energy bills and destroying the environment. Their wealth and power remain untouched by this or any other budget.
The liberal left advocates of tax reform would argue that it does not have to be this way and that there is indeed a magic money tree, if only tax was increased on the wealthy.
At first sight, this seems an attractive counter to the constant refrain of a necessary fiscal restraint. In actual fact, both sides are culpable of viewing the public purse as the main source of revenue. Moreover, as the evidence will demonstrate, even the most “radical” tax reforms would do little to alter the fundamental inequalities of capitalism, inequalities which are reproduced – every minute, hour and day of the week - through the incessant exploitation of workers' labour power. Whether in good times or bad, through all phases of the capitalist business cycle, the ruling rich get richer and the working class get poorer.
The fraud of taxation.
Besides the many loopholes that allow for corporate tax evasion, the greatest deception of all is that the tax system per se is a fair way of harnessing the nation’s wealth. Taxation, we are led to believe, is a progressive system whereby the more wealth you have the more you are taxed. According to this myth, the ruling class supposedly “gives back to society”. through its contribution to the welfare state. In this way workers are apparently protected from corporate greed with the benefits of a “safety net” for those who, for some seemingly inexplicable reason, are unfortunate enough to be poor.
Even at its peak, however, this much vaunted “cradle to the grave” protection acted as undertaker to an early grave for millions of workers suffering from lung, heart and liver disease due to a combination of working conditions and/or poor health and diet.
There can be little doubt that, when the Thatcher government slashed the higher rate of tax from 83% to 40% and increased VAT from 8% to 15%, it accelerated the division between rich and poor. However, this was only a matter of degree, it was not the root cause.
In modern class society, the overall burden of taxation has always weighed heaviest on the working class. This was highlighted by the writer George Irvin, in the book Tax Justice and the Political Economy of Global Capitalism:
“Unlike the US, the overall incidence of direct and indirect tax on income in the UK is regressive – i.e. the poorest 10 per cent pay a higher proportion of their income in tax than the richest 10 per cent.”
Taking into account indirect taxation such as VAT, council tax and National Insurance Contributions, Irwin reproduces the following table to demonstrate just how regressive the tax system is:
[Explanatory note: a decile is a method of dividing a data set into 10 equal parts based on rank order.]
However, even this table falls short of revealing the full extent of the tax system’s regressive nature.
Income tax, as its name suggests, is overwhelmingly based upon income rather than existing wealth. The latter comprises wide ranging assets in the form of property (real estate, business premises and equipment, jets, cars, yachts etc), combined with lucrative savings and investment portfolios. Property ownership is at the centre of this. In a recent Guardian article, the centre-left journalist and author, Will Hutton, claimed that,
“Half of British wealth is in property, so unsurprisingly the wealth gap between the top and bottom 10% grew from £7.5tn to £11tn between 2011 and 2019 as house prices increased.“ [Note: 1 £trillion equals £1,000,000,000,000 , i.e. one million million] ,
These wealth inequalities were confirmed by a 2021 report showing that the bottom 50% of the UK population owned less than 5% of wealth,with the top 10% owning 57% (up from 52.5% in 1995). To solve this, some advocates of a “fairer” tax system propose a variety of changes to the tax system, ranging from increases in capital gains tax to a new wealth tax.
Capital gains
The classification of capital gains itself is a misnomer. Instead of registering the expropriation of surplus value produced by labour power and its realisation in the form of different commodities, the tax applies solely to transactional gains from the sale of assets such as real estate, works of art, shares, bonds and other financial products.
The tax band itself is extremely low with most types of capital gains being taxed at a maximum of 20% and a minimum of 10%. In the UK it raises about £15bn, just 2% of tax revenue. Were this to be increased it would still only scratch the surface of capital assets. The reason for this is simple: the wealth of the billionaire families (not to mention the upper echelons of the middle class) does not have to be monetised to increase in value and reproduce itself.
For example, if you have unsold (and therefore untaxed) assets amounting to £50 million, these can be used as security for loans and investments in other capitalist projects. Even if they are not used in this way, they are a vital register of wealth and can increase in value due to market fluctuations ,and still remain untaxed.
Corporation tax
In addition to capital gains tax, the application of corporation tax on company profits contributes to the myth of wealth redistribution. With an upper limit of 25%, this tax on profits contributes less than income tax, less than VAT and less than NICs. Moreover, it does not substantially affect the wealth of shareholders, CEOs or boards of directors, who already calculate the impact of this tax when making investment decisions.
If, for example, you are a shareholder in Shell, you know that the dividend on its profits will reap handsome rewards, even after taxation.
“Shell shareholders”, reported the This is Money website in February 2023, “are continuing to reap the benefits of record profits, as the energy giant extracts substantial rewards from high energy prices.
“As it revealed a record $39.9billion (£32.3billion) annual profit on Thursday Shell hiked its dividend by 15 per cent............ This marks the fifth increase. [since Covid- BL] .... and brings total shareholder distributions in the fourth quarter to $6.3billion.”
Shell’s 2023 profits were the highest in its 115-year history, derived principally from the war in Ukraine. One thing is sure: their prosperity did not benefit the working class in any sense whatsoever.
It is true that Shell forked out an estimated $500 million in windfall tax for that year, but as a tiny fraction (1.25%) of its profits, all this did was to sugar coat the bitter pill of rising energy prices.
The myth of equality via growth
In their pivot towards big business Starmer and Reeves have trumpeted the supposed benefits of social progress via greater opportunities for capitalist investment. This outworn economic dogma has been applied many times before, and across most parts of the global economy. When put to the test, it was found totally wanting.
Following a new cycle of capitalist growth that began in the mid-1990s, the United Nations issued a 2020 report which came to the following conclusion:
“The extraordinary economic growth and widespread improvements in well-being observed over the last several decades have failed to close the deep divides within and across countries.....
“Income inequality has increased in most developed countries and in some middle-income countries, including China and India, since 1990.....
“Despite progress in some countries, income and wealth are increasingly concentrated at the top. The share of income going to the richest 1 per cent of the population increased in 59 out of 100 countries with data from 1990 to 2015.1 Meanwhile, the poorest 40 per cent earned less than 25 per cent of income in all 92 countries with data .”
In the UK, this “extraordinary economic growth” had already begun under the Thatcher government in the early 1990s. It became part of the mantra of New Labour with one of its leading ideologues, Peter Mandelson, gayly declaring:
“We are intensely relaxed about people getting filthy rich, as long as they pay their taxes”
As the Blair government retained Thatcher’s cut to the top rate of income tax, British capital had a field day. In line with a surge in income for those at the top, there was a corresponding increase in the percentage of wealth held by the top 10 percent of the population, marked by a corresponding decrease in wealth held by the working class. New Labour left office with a majority of the British people, some 90%, having to get by on around 60% of the national income. In short, capitalist growth merely accelerated social inequality.
This is reflected in the chart below issued by the Office for National Statistics( ONS).
Today, British capitalism boasts the ninth highest level of income inequality amongst the world’s biggest economies. However, even that is just one part of the overall wealth inequality. According to the ONS, the top fifth take 36% of the country’s income and 63% of the country’s wealth, while the bottom fifth have only 8% of the income and only 0.5% of the wealth.
Proposals for a wealth tax
The futility of existing tax regimes to tackle wealth inequality is virtually universal. The consequences of this in Germany, for example, showed that from 1990 to 2008 net income from capital and wealth rose by 96.2% whilst net wages increased by only 33.3%.
This universal and ever widening chasm between rich and poor has led some capitalist politicians and pundits to consider levying a wealth tax on the “super rich”. Apart from Sanders, the leading proponent of this amongst the G20 group of the world’s wealthiest countries is the Brazilian President, Luiz Inácio Lula da Silva. Lula, as he is popularly known, is proposing a global minimum tax on the world’s 3,000 billionaires. This type of measure has already found favour in Spain which has introduced a temporary “solidarity” wealth tax on the fortunes of the “super rich”.
Like the Shell windfall tax, this tax’s puny rate of 1.7% to 3.5%, was aptly described as a “feather light” touch which, to add insult to injury, also excluded assets such as luxury yachts, jets, shares in listed companies and industrial property. It was estimated to affect some 0.1% of the ruling rich and to raise 1.5 billion Euros.
A similar proposal, adopted in a modified form by Kamala Harris, is a tax on unrealised capital gains. With Donald Trump castigating Harris as a radical Marxist, you might be fooled into thinking her tax proposal was an existential threat to American capitalism as we know it.
In fact, the tax would have applied only to those with wealth exceeding $100 million and would just affect the wealthiest 0.01% in the country. Even then it would be limited to unearned rises in capital assets, such as increases in the value of property or shares. Their existing wealth would remain untouched and they would still get richer, albeit by a slightly lesser amount
Regardless of its liberal packaging, this wafer thin slice of the economic pie even less of an alternative to the intrinsic exploitation constituted by the daily cycle of capitalist production.
Even at the summit point of the welfare state in pre-Thatcher Britain, when the highest rate of tax on earned income was 83 per cent, class exploitation and wealth inequality remained untouched. This was a time when the British working class recorded the unprecedented levels of post-war trade union militancy, registered in a wave of strikes demanding higher wages and better conditions across a broad swathe of UK industry.
These were the days of mass meetings, wildcat strikes, direct democracy, flying pickets and solidarity actions, when workers stood together and fought for their interests. Beyond any tax measure, workers proved capable of wresting some real concessions from their capitalist masters.
The clearest example of this was in the coal industry when the miners’ strikes of 1972 and 1974 won pay rises of 27% and 35% respectively. Two years later, the miners led by example in their mass support for the mostly Asian women workers fighting for a union at the Grunwick photo processing plant in London.
The fake labour leaders in the top brass of the TUC and the Labour Party, stood against most of those struggles. They have done so ever since, attempting to derail them in preference for a cozy, collaborationist relationship with the mega rich magnates of industry and finance.
That is the essence of the tax system and tax reformism: they each act to deceive workers into accepting class exploitation. Take away all the trappings and taxation shows itself as little more than a legalised form of charity. With cap in hand, the union bureaucrats plead for the capitalist fat cats to behave more “fairly”; anything but struggle against the daylight robbery of a profit hungry system.
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