Drawing on Marx, and those who have followed in his footsteps, this paper introduces readers to a number of related and interrelated approaches and methodologies There is much debate in Marxist circles about whether Marx, in fact, had a method or even methods. The term here is used to describe the dialectic—totality, contradiction, change—and its application by Marx and others to subsets of the totality of society, including tax, through processes such as abstraction.
Indeed, it is arguable that all three sides of the coin Who imagined only two sides? Indeed, could coins not be multisided depending on the view one takes of them and what one determines to be a side? For example, a serratededged coin could arguably have many sides. This raises the question of individuation— what is the unit under examination and is that not also a totality? No, because the totality is society, and we, doing what is humanly possible, examine important subsets of that totality such as the mode of production—capitalism today—and subsets of the important subsets, such as tax.
The paper uses concepts such as totality, appearance, and reality and the dialectic process—totality, contradiction, change, all combining other in constant contradictory motion J John Passant,
The tax system is under constant pressure for reform. Fleur Anderson, J K For example, the Goods and Services Tax came into effect on 1 July 2000 as part of the ‘A New Tax System’ package. Surplus value is the difference between the value a worker creates and the value of their labor power (or much more crudely, but for the purposes of exposition for non- Marxists, the difference between what workers are paid and the price of the goods and services they create).
The paper starts in Part II with an introduction to methods of deeper thinking and understanding through looking at an iceberg model developed by a very senior Australian tax officer. This sense of depth is, I believe, a gentle nondialectical introduction to a discussion on the need for dialectical thinking in tax and leads neatly to an examination of Marx’s method(s) in Part III.
That section abstracts parts of Marx’s methods to make them manageable and digestible. This involves a discussion of Marx’s standpoint— the working class—and his methods and approaches such as abstraction, cleaning the windows, what the dialectic is in broad terms, and the difference between appearance and reality. The chapter develops key points such as the dialectical understanding of totality and, in situ, the interrelationship between tax and capitalism that underpins, and is a case example of, the intertwining and interconnectedness of things and relationships. Marx’s dialectical method and his process of abstraction, “the intellectual practice of breaking [the] whole down into the mental units with which we think about it,” B
Using these tools, the paper moves from the real concrete through the process of abstraction to the thought concrete A Tunisia, Egypt, Syria, Libya, Bahrain, Greece, Spain, Portugal, Italy, Venezuela, Ukraine, Thailand, and Bosnia all come to mind in varying degrees.
The aim of this paper, then, is to introduce readers to Marx’s methodological tools, which enable us to begin that process. The last section of the article looks at tax in general through the various windows Marx has given us to help us get a better understanding of the deep rivers that flow through or underneath the seemingly shallow canal of income tax.
In doing this, I stand on the shoulders of the great, people such as Marx, Engels, Lukács, Ollman, and others. They have done the general theoretical work. The task is then to apply their insights and methodologies to tax in Australia to understand that part of the totality, that is, tax, and the totality itself—in this case, capitalism in Australia or, more appropriately, capitalism as it exists and operates in Australia.
Let’s start on this journey by looking at a simple model drawn from the work of a very senior member of the Australian Tax Office (ATO) as a way of introducing us to depth and tax simultaneously.
As tax teachers, lawyers, and accountants, it can seem that we are forever destined to deal in minutiae. Yet even at a basic level—for example, when we are debating the meaning of words in a tax statute—the Commonwealth Acts Interpretation Act 1901 and judicial approaches exhort us and force us to look at extraneous material to understand the “real” meaning of the words to which Parliament has given its often unknowing and, I would suggest, unknowable imprimatur. The process of “looking behind” the words of the statute involves examining, among other things, second reading speeches, and explanatory memoranda. The process of looking behind, going deeper, is about understanding the policy and context for the particular laws that helps us understand the provisions. However, we do this at a superficial level. We hardly ever allow capitalism—a specific and transitory mode of production B A
A social group identified with the continuation of the old relations of production and the old institutions of the superstructure necessarily only has a partial view (or a series of partial views) of society as a whole. Its practice is concerned with the perpetuation of what already exists, with ‘sanctifying’ the accomplished fact. Anything else can only be conceived as a disruption or destruction of a valuable, harmonious arrangement. Therefore, even at times of immense social crisis, its picture of society is one of a natural, eternally recurring harmony somehow under attack from incomprehensible, irrational forces. Chris Harman,
We tax teachers, tax administrators, tax policy wonks, and tax practitioners are, as Harman said, concerned with sanctifying the accomplished fact—in this case, the accomplished fact of capitalism and the role of tax within it. As Hegel told us, the owl of Minerva flies only at dusk. “When philosophy paints its grey in grey, one form of life has become old, and by means of grey it cannot be rejuvenated, but only known. The owl of Minerva takes its flight only when the shades of night are gathering.” G. W. F. H
We must not only look back, like the owl of Minerva. We must look forward. Indeed, what is in view contains the past, the present, and possible futures. Ollman argued that history for Marx, and this is something that equally applies to tax and tax research, “refers not only to time past but to future time. Whatever something is becoming—whether we know what that will be or not—is in some important respects part of what it is along with what it once was.” Bertell Ollman, Leon Trotsky, These ideas of totality, change, and contradiction are, as we shall soon see, at the heart of the dialectic. Trotsky,
To do that, let’s start off with an analysis of tax complexity not from a Marxist point of view but from that of a senior tax officer, and one of the few who has made any attempt to go beyond platitudes about the purpose and policy of tax laws or proposed laws to try to contextualize tax in Australia. I offer this example because it shows that it can be done and is, I believe, a way of introducing readers to more complex Marxist approaches, in particular the dialectic, to help understand tax.
ATO Deputy Commissioner Jim Killaly has sought to understand the depth of tax, including different worldviews which, he argued, drive and interact with the actions of players in the tax system. He is, in my experience, one of the best strategic thinkers in the ATO today. I worked in Large Business and International in the Australian Tax Office when Jim was the Deputy Commissioner in charge. His leadership, and the Strategic Leadership program he set up, gave me hope for the ATO. Jim Killaly, Deputy Commissioner of Taxation, ATO, Strategic leadership in a technical and policy delivery environment: The Tax Office experience of compliance management in the large business sector, 2009 M
In this, Killaly prefigured, paradoxically after the event, Marx and his search for the essence rather than the appearance of a thing or, more appropriately, the thing as a relation. For example, Marx begins Volume One of
To emphasize the idea of interconnectedness, here is what Killaly said at the bottom of the slide:
The ability to regularly move back and forward through the different levels allows us to connect the little picture to the big picture and make meaning of what we are seeing. Knowing the structural drivers and dynamics and the relationship between them allows us to shape the system. From this, we identify opportunities for leverage and reform.
While this shows a dialectical understanding of relationships, it lacks systemic depth and an understanding of class and the relentless drive for profit and the reinvestment of that profit, that is, the Grundnorm of capitalist production or—as Marx put it—“Accumulate, accumulate! That is Moses and the prophets.” K As Marx and Engels say: “The history of all hitherto existing society is the history of class struggles.” K
Talk of class struggle conjures up visions of strikes and picket lines. However, both sides of the class divide can, and do, wage class struggles. The past 30 years of neoliberalism and working class quiescence in Australia John Passant, Sharon Smith, K Although arguing against Marx and claiming that his old mole of class struggle was dead, Hardt and Negri say this by way of explanation of Marx’s view of the old mole. “Marx tried to understand the continuity of the cycle of proletarian struggles that were emerging in nineteenth-century Europe in terms of a mole and its subterranean tunnels. Marx’s mole would surface in times of open class conflict and then retreat underground again―not to hibernate passively, but to burrow its tunnels, moving along with the times, pushing forward with history so that when the time was right, (1830, 1848, 1870) it would spring to the surface again. ‘Well grubbed old mole!’” Michael Hardt & Antonio Negri,
When Killaly in his iceberg model posits worldviews as the base, he adopts an idealist approach rather than a materialist one to understanding the world. Ideas come from, and reflect, a material base. As Marx wrote: “It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.” K G Rees,
Killaly’s iceberg model is useful in pointing out that there are deeper forces at work in tax than just the surface happenings or events or the policy rationalizations or even worldviews. Let’s build on that to move into a discussion about totality and change.
The second aspect that Killaly’s model doesn’t address is the context in which the iceberg finds itself. To continue the analogy, we need to understand not just the iceberg but also the sea in which it floats and is submerged, and the world that sea is in and of which it is a part. Processes such as global warming and the creation and destruction of icebergs would be included in that.
So instead of looking just at the tip of the tax iceberg, tax teachers, administrators, and practitioners need to—indeed must—explore the submerged tax mass. However, they have to go further (and to give him his due, Killaly does do this in other parts of his presentation and slides) For a brilliant explanation of Marx and the environment,
Before we address the question of the dialectic, to understand it, we must first understand the point of view, the window or windows—into society that those thinking in this way adopt.
Marx sees the world through the eyes of the working class. His view is not, it is true, as a worker but in the context of capitalism and its transitory nature and the role of the working class in becoming the subject of history rather than just its object, or the subject–object of history, as Lukács puts it. Lukács,
The law locks up the man or woman Who steals a goose from off the common, But leaves the greater villain loose Who steals the common from under the goose. 15th century, English, Anonymous, quoted by Ollman,
The commons, of course, was the land owned by everyone in the village. By the late Middle-Ages, feudal lords were claiming this land as their own private property. In universities today, we can discern two opposing kinds of scholarship—that which studies the people who steal a goose from off the commons … and that which studies those who steal the commons from under the goose … If the ‘mainstream’ in practically every discipline consists almost entirely of the former, Marxism is our leading example of the latter. Ollman,
Marxists study not just the ruling class but attempt to understand why they are the ruling class. They examine the processes of history that saw them become the lords ruling over the commoners and commons, bosses over workers, and the relations that make them the rulers. They investigate particular areas from the viewpoint of the working class as both the object and the subject of history. They have a materialist approach, and for this reason, the dialectic is sometimes referred to as historical materialism precisely because Marxists look to the way human beings organize production to help understand that society. As Lukács said, “historical materialism alone is in a position to offer objective and correct knowledge of capitalist society. It does not deliver this knowledge independently from the class standpoint of the proletariat, but rather precisely from this standpoint.” G
What changes the class from being the object of history to its subject? As Marx and Engels famously put it, “the history of all hitherto existing society is the history of class struggles.” M
For workers, class analysis, class consciousness, and struggle are intimately mixed and this holds true in tax, too. It is no surprise that the dominant capitalist ethos and ideology of neoliberalism has captured tax and tax policy Passant, T
As to processes and tax analysis and teaching, for example, Ollman said that it is easy to see the thief taking the goose but the theft of the commons is more difficult to see, because it occurs over time as part of a process. Ollman, Passant,
According to Ollman, because capitalism is so big and so all-powerful, few of us see it. Ollman,
Certainly, when we are thinking about tax, capitalism, its structure, and arrangements are assumed as the eternal background, the natural wellspring of taxable income in the hands of capital and labor. Like the almost automatic process of breathing the air around us, we often only question the process when the air is poisoned. The complex interrelations and the process of change within the system blind us to the reality,
Abstraction is a key process for Marx and Marxists. Marx explained his method of political economy in the following way:
It seems to be correct to start with the real and concrete, the actual prerequisites, thus in economics, e.g., with population, which is the basis and the subject of the whole social process of production. Yet, on closer consideration, this proves to be wrong. The population is an abstraction if, for instance, I omit the classes of which it is composed. These classes, in turn, remain an empty phrase if I am ignorant of the elements on which they are based, e.g., wage-labor, capital, and so on. These presuppose exchange, division of labor, prices, etc. For example, capital is nothing without wage-labor, without value, money, price, etc. If, therefore, I were to start with population, it would be a chaotic idea of the whole and through more precise determination I would arrive analytically at increasingly simple concepts; from the concrete as imagined to increasingly tenuous abstractions until I reached the most simple determinations. From there it would be necessary to take the journey again backwards until I finally arrived at population again, but this time not as a chaotic idea of a whole, but as a rich totality with many determinations and relations. K
In other words, as Ollman puts it, we move from the real concrete to the thought concrete through abstraction. Ollman, II K
The income tax system reflects that fundamental contradiction ideologically by assuming capitalists earn their profit, interest, rent, and the like rather than it flowing from labor. Indeed, income tax in Australia is theorized and based on three categories of income—income from labor, income from property, and income from business—a combination of both labor and capital. For a more tax-technical discussion of these categories,
Income tax also applies after the event—that is, after the process of realization on the market occurs. This produces profit and this can be reinvested as capital to purchase labor power again. The tax system is predicated on the “reality” or the “fact” that workers are paid for their labor rather than their ability to labor or their labor power. It does this by both following the Trinity Formula for income and developing a category called taxpayer to whom is assigned, in the case of business, the responsibility of tax on the value in real form they have expropriated or exploited from workers. In addition, the revenue that government raises will be used for capitalist purposes—for example, infrastructure for capital, tax expenditures on business and the rich, and the social wage to produce educated and healthy workers to exploit.
The contradiction is also fought out politically and economically in terms of the real appearance over which class bears the tax burden. Of course, if tax is an extraction from surplus value, then the answer is that the state becomes a further extractor of surplus value, at the expense—so capital sees it—of a greater share for them. Thus, the introduction and expansion of consumption taxes could be seen, even if it occurs in conjunction with tax cuts for all, including business, as a shift from taxing capital to taxing labor. In part, this will be because inflation over time will increase the average tax rate as workers go into higher tax brackets while for business, the flat rate remains just that—a flat rate.
Obviously, neither capital nor the vast majority of labor see tax as an extraction from surplus value. The tax system reflects the individualization of the distribution of surplus value in money form into particular hands. The particular nature of the distribution that occurs depends on whether one owns the means of production or one only has one’s labor power to sell to capital to survive. Despite the fact that there is not a level of understanding of the essence of taxation, the real concrete remains real, but that, too, has consequences. A number of revolutions—for example, the French Revolution and the American Revolution—had, as one of their immediate sparks, taxation. The Henry Tax Review was, in the main, a neoliberal argument for a further shift in tax, at the level of the real concrete, from capital to labor. Passant,
David Harvey has also given us a very insightful way of looking at Marx’s approach. He understood that Marx’s relational approach means nothing is fixed and no concept can be understood in isolation. D
We cannot really clean the windows without looking at class and class struggle, or lack of it, the creation of surplus value, the circulation processes in capitalism, the transformation of value into prices, disruptions to the “natural” distribution of surplus value, both the complementary and antagonistic nature of the capitalists who make up the capitalist class, the claims of different sections of capital and the state to a share of surplus value, the tendency of the rate of profit to fall, to name just a few concepts to help us on our long journey to tax enlightenment. We can view tax through these numerous windows, wiping clean the muck of ages K
The dialectic is a way of understanding the process of change, including in tax. What, then, is this dialectic everyone isn’t talking about?
Like all good dialecticians, the parts have been partially revealed in our previous discussion. To concretize our thinking, Birchall said: “Dialectics … is the study of how things change.” Ian Birchall, 4 F
Just as the bourgeoisie by large-scale industry, competition, and the world market dissolves in practice all stable time-honoured institutions, so this dialectical philosophy dissolves all conceptions of final, absolute truth, and of absolute states of humanity corresponding to it. For it (dialectical philosophy), nothing is final, absolute, sacred. It reveals the transitory character of everything and in everything. Nothing can endure before it except the uninterrupted process of becoming and passing away, of endless ascendancy from the lower to the higher.
This complex of processes occurs within a totality so a change in one part of the totality produces changes in the rest of the parts because of their interconnectedness and, thus, in the totality. The totality is society. Lukács, Birchall,
Tax is a very handy part of the body of capitalism. There is a duality to tax in this sense. It is levied by the state and, whatever else may and can be said about the state, and many careers have been built on just this enquiry, the state under capitalism remains a capitalist state. However, tax is levied after the event—that is, after surplus value is created and appropriated. More than that it is levied after the circulation process has seen the capitalists realize profit, or interest or dividends or rent, and the profit is then capital again, to be used among other things to buy labor power (living capital) and machines, buildings, etc. (dead labor). Tax is levied during the process of the distribution of surplus value, which capital regards as its property, its worth, its earnings, its income and, as part of the process of realizing surplus value in concrete form, as profit, rent, interest, and so on. Tax upsets the natural order of things from the point of view of the capitalist because it subtracts from their “return on investment”, that is, the amount they have invested or reinvested in the means of production and labor power.
Further, tax itself, and tax reform, if implemented, and depending on the nature of the reform, can produce changes in the relationships within capital or sectors of it, between capital or parts of it and the state, See Passant,
Tax will influence, in direct and indirect ways, the production of surplus value and its distribution as profit, interest, rent, dividends, and wages. At a micro level, sections of capital, for example, which see their profit being taken by the state might change their residence or earning location and use 19th century tax treaty concepts to avoid tax in seemingly higher taxing jurisdictions such as Australia (one example of base erosion). Google made between $1 and $2 billion in revenue from Australian sources in a recent income year but paid, on one estimate, only $74,000 in tax here. John Passant, Neil Chenoweth,
As Google chairperson Eric Schmidt said, in defending his company’s tax avoidance activities around the globe, activities that saw it funnel almost $10 billion into Bermuda, saving $2 billion in taxes:
I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate. The company isn’t about to turn down big savings in taxes. It’s called capitalism. We are proudly capitalistic. I’m not confused about this. Brian Womack,
In other words, for business, tax laws become part of the structure of capitalism and paying tax is a cost to business. The competitive drive to lower costs and secure more profit for each individual business means that company tax “planning” or avoidance is not a failing of capitalism. It is its logical expression. It is not something that can be legislated away. It is inherent to individual capital in a competitive capitalist society. So, too, arguably are the judiciary’s ideas or even world views of community and the individual that underpin differing judicial approaches to the various general anti-avoidance provisions in Australia. John Passant,
How, then, does the dialectical method ‘Dialectical materialism’ is a term used and abused by the Stalinist regimes to turn creative thought into a crude rubber stamp for state capitalist dictatorship.
As Lenin said,“[t]he splitting of a single whole and the cognition of its contradictory parts is the essence (one of the ‘essentials,’ one of the principal, if not the principal, characteristics or features) of dialectics.” V I Lenin, Ollman,
This general approach emphasizing totality, contradiction, and change, too, is reflected in John Rees’ discussion of the dialectic. He said that its general form “… is an internally contradictory totality in a process of constant change.” Rees, Lukács,
Under capitalism, the producer is separated from the productive process as a whole. Workers are atomized and individuated, divorced from the wider system of which they are an integral part.
Marxism, however, simultaneously raises and reduces all specializations to the level of aspects in a dialectical process. This is not to deny that the process of abstraction and, hence, the isolation of the elements and concepts in the special disciplines and whole areas of study is of the very essence of science. But what is decisive is whether this process of isolation is a means towards understanding the whole and whether it is integrated within the context it presupposes and requires, or whether the abstract knowledge of an isolated fragment retains its ‘autonomy’ and becomes an end in itself. In the last analysis, Marxism does not acknowledge the existence of independent sciences of law, economics or history, etc. There is nothing but a single, unified—dialectical and historical—science of the evolution of society as a totality.
Alternatively, as Alfredo Saad-Filho said, “the capitalist economy…is integral and whole, and…this organic system of mutually conditioning things is determining with regards to its parts, or moments.” A M
So it is with any attempt to understand tax—understanding the tax system and its specifics as part of a whole, but a whole in the process of constant change in which the individual parts conflict and battle each other to produce change. Not only that, it is about abstracting from the specifics to better understand them. Totality, contradiction, and change sums up the process. Rees, C
The contradiction at the heart of capitalism is that between capital and labor, or as Engels put it: “The contradiction between socialized production and capitalistic appropriation manifested itself as the antagonism of proletariat and bourgeoisie.” Friedrich Engels, Or the lack of it by the working class and, hence, dominance of the ruling class. M
In Australia, industrial action—the open fight by workers in the battle between capital and labor—has been mainly hidden for many years. T Bramble, Marx,
Bernard Keane in Bernard Keane,
Class antagonisms also play an important, if often indirect, part in the design and ongoing relevance of tax systems and shifting tax bases, tax policy direction. The level of class struggle impacts on the general political climate, and this influences all politicians, including politicians of the reformist left and their approach to tax. All, of course, interact and struggle with each other as part of the bubbling mud pools of tax change. Now, of course, the interplay between capital accumulation, profit rates, and taxes is vital to understanding the role tax change plays in propping up the capitalist system by, for example, reducing the tax burden on the reapers of profit. In other words, it acts as a countervailing action to the tendency of the rate of profit to fall. Marx,
We can see the contradiction between capital and labor playing out in the media at the moment with calls for major reform based on the Henry Tax Review recommendations and the head of that group, Ken Henry, warning of a tax crisis in the near future if reform is not pushed more forcefully. Anderson, T Roger Brake from the Treasury Revenue Group has listed some of the key issues arising in the discussion of tax reform, including personal and company income tax cuts, reducing the superannuation and capital gains tax concessions, addressing in some way the negative gearing of rental properties, and broadening the Goods and Services Tax (consumption tax) base and/or increasing the rate. See Roger Brake, The Treasury, The Business Council of Australia, recognising the opposition to GST and other changes that might be seen as unfair, has recently put out a discussion paper on tax reform suggesting their proposing be phased in over time, with the company tax cuts first priority and the GST changes pushed back to 2025. Details of the Labor Party’s negative gearing and capital gains tax proposals can be found here. Australian Labor Party, P
Underlying changes in society can force tax changes. Changes within Australian and global capitalism (recognizing that Australian capitalism is part of global capitalism and becoming more and more integrated into the global system), against a background of an almost complete lack of industrial action by workers, are worthwhile areas for investigation to understand tax reform and the push for tax reforms in Australia.
Dialectical thinking can help us in that understanding. Some readers might have read about the “three laws of the dialectic.” These “laws,” drawn from Engels, are “the unity of opposites, the transformation of quantity into quality, and the negation of the negation.” Rees,
While we tax experts may look deeply into the eyes of the policy makers and parliamentarians—invariably not the same people—to discern meaning, or even investigate the underworld of structural drivers, what we generally don’t do is posit tax and tax policy debates and discussions in the context of a specific time in history where production is organized (fleetingly as it happens in the grand scheme of human development) J M
Ollman relays a wonderful story from mythology Ollman, K
In other words, we need to break through the surface phenomena to understand the deep structures we are dealing with. Whether we acknowledge it or not, we are social scientists in the field of tax. As Hobsbawm put it, drawing on Engels, “[t]he good social scientist [can] only be a person free from the illusions of bourgeois society.” E T Karl Marx,
At one level, most readers—I hope—can accept that to understand tax, you need to understand it in its political, social, and economic contexts. That trite statement contains a real kernel of truth, one that political economists and tax academics like me can build on. As Marx put it: “If the essence and appearance of things directly coincided, all science would be superfluous.” M J
That is true, too, of tax. You cannot understand tax and tax reform divorced from the society in which it exists. Society is split into classes. One owns the means of production and the other sells its labor power to survive. Through its labor, one produces surplus value, the other expropriates or obtains that surplus or part of it. Harman
“Objective” truth does not just arise; it is not discovered like gold. Unlike, evidently, the ‘correct’ case decision, according to rule of law proponents. Karl Marx, Paul D’Amato, Leigh This was, and is, one of the slogans of a militant Australian trade union, the Builders Labourers Federation.
However, in understanding the reality of tax and exploitation, tax and the state, tax, and capitalism, it becomes clear that progressive victories may, at best, be temporary and the daily grind of the needs of capital for profit and accumulation undermine or threaten to undermine every ounce of social progress the working class has won. Winding back or destroying the welfare state in Europe is but one current example. John Passant, Brigid van Wanrooy, D This was a personal observation on her part. She spoke to me at that rally. van Wanrooy, M
One final point. The state levies tax. Rather than some neutral body overseeing society, the capitalist state is a creature of the capitalist system. Chris Harman, This “rule for capital not capitalists” role often fell to Labor or social democratic parties because in the past their social base was the trade union or working class movement, not the corridors of capital. H
The state is one of the band of hostile brothers of capital, united in exploiting workers but fighting among themselves for a greater share of surplus value.
The rise of capitalism in England and its wars with revolutionary France saw income tax introduced as a temporary measure until the wars ended and the tax was repealed in 1816. M
It is not capital that imposes taxes. It is the state, a state dependent on the capital accumulation process for its existence and survival. This does not make the state a mere instrument of capital. Nor is the modern state in advanced capitalist countries such as Australia just or only “the executive committee for managing the common affairs of the bourgeoisie.” M Adam Przeworski & Michael Wallerstein, Harman,
For example, the state can impose solutions on capitalism for the benefit or survival of the system as a whole and at the expense of particular sections of capital if needed. In Australia, this role has traditionally fallen to the Labor Party because of its structural links to the trade union bureaucracy and arm’s length distance from capital. Those days appear to be well in the past, as the failure of Labor to impose a Resource Super Profits Tax and only being able to pass a watered down version in the form of the Minerals Resource Rent Tax, a tax designed by the three big multinational mining companies in Australia, shows. John Passant,
Before Federation in 1901, and after the British invasion in 1788 H Colin Tatz, S Ben Hillier & Tom O’Lincoln,
By the time of Federation, many of the States had income taxes, but they were levied on different definitions of taxable income and at different rates. R
This confirmed the process of centralization of power into the hands of the Federal Government that was occurring within Australia from the time of Federation and which was boosted by the Second World War.
Wages are the market price for the sale of a worker’s labor power, their ability to work. That labor power is itself valued by reference to the socially necessary labor time that goes in to the commodity. In short, it is the amount need to reinvigorate the worker for work the next day and into the future, to allow him or her enough to raise a family as the next generation of workers and to provide for some historically specific expenses such as a few beers or wines on Friday night watching the footy. M
Wages will fluctuate around this value level, depending on the level of class struggle. This means that after tax wages, in times of relative economic prosperity will not be below their value. However, it also means that income tax can, at times, cut real wages to below their value. So a fight for a living wage can be a fight to overcome the desire and often reality of capital to pay workers the minimum they can to maximize their profits.
However, it can also be a fight over the ability of the state to tax workers’ earnings to avoid their after tax real wage falling below the level of their value. It, too, can be a fight over the amount of tax imposed on capital, although arguably this can be recouped in the market assuming that capital can increase prices to adjust for taxes. This may not always be the case, especially if the products the particular capitalist produces compete in offshore markets where similar taxes or levels of tax do not exist.
More importantly, the bourgeoisie or sections of it may demand cuts in taxes on capital in response to international competition or more fundamentally as one of the number of counteracting tendencies or countervailing methods to address the systemic tendency of profit rates to fall. For a discussion of the Law,
There may be a struggle over the social wage where the state extracts both income tax from workers and redistributes some of that to those workers in the form of public services such as education, health, transport, unemployment benefits, and other social security payments. The provision of such social services may be cost-effective for the State in creating a fit and educated workforce (and, hence, more exploitable workers), but it may rob certain spheres of activity such as public health and education from commodification and, hence, profit making for private capital. The long slow march―or perhaps zigzag―to private education and health care in Australia has been ongoing since the election of the Hawke Labor Government in 1983. The links Labor had with the union movement enabled it, for example, to introduce a “pay later” scheme for higher education in 1988/1989.
Clearly, there are class antagonisms in tax systems. Tax issues from 1763 onwards were one of the sparks for the American Revolution and tax lit the bourgeois revolution in France in 1789. Even in Australia, tax (in the form of mining licenses) was at the heart of the Eureka Rebellion in 1854. They are specific examples.
However, it was not tax that prompted the working class revolution in Russia in 1917 or the many outbreaks of revolution across Europe during and after World War I. It was privation, poverty, lack of democracy, and slaughter. It wasn’t tax that saw Chinese workers revolt in 1926, nor was it tax that saw Hungarian workers rise up in 1956 against the Stalinist dictatorship. It wasn’t tax that fueled the workers rising up during the Iranian revolution of 1978–1979. Tax wasn’t at the heart of the working class and other agitations against Stalinism in Poland in 1956, 1970, or1980–1981. It wasn’t tax that was at the heart of the overthrow of the Stalinist regimes in Russia and Eastern Europe in 1989–1991. Tax, however, was (and remains) part of the system of exploitation and oppression, including war and privation, which saw workers in these disparate countries, across many generations, revolt.
While tax was a barrier to capitalist development in France in the years preceding 1789, Leonard J. Hochberg, For a good discussion of the history of democracy, including socialist participatory democracy,
There is also a temporal dimension in tax. Bracket creep, when increases in wage move workers into higher marginal tax rates, is an important part of any slow, ongoing increased taxation on workers and possibly, depending on the level of wage increases, decreasing or helping to decrease after tax living standards, too. The introduction of the GST in Australia from 1 July, 2000, is a case in point. It was accompanied by income tax cuts whose value was eroded over time through bracket creep. One estimate is that by 2005/2006, bracket creep had clawed back $3.8 billion of the GST tax cuts, Thus Hielke Buddelmeyer et al. said, “This $3.8 billion is the dollar amount of bracket creep, expressed in first quarter 2004 dollars, and represents what it would cost to compensate the Australian tax payers for the extra amount of tax they would pay in 2005/06 as a result of inflation as measured by the CPI since 2000/2001.”
Income tax in Australia is imposed on “taxable income”: assessable income less allowable deductions. Income, whatever form it takes, is a given. Wages, dividends, interest, rent, and profits, for example, are all specific examples of income that is assessable income and often will also be taxable income. Income is a generic term that captures different forms of income and does not ask from whence this magical item arises. The answer seems self-evident. Wages come from labor. Profits arise from business, or capital and activity. Interest comes from invested money. Rent is the product of land. Dividends flow from shares.
As mentioned previously, this reflects in part what Marx called the Holy Trinity approach of Adam Smith. In short, the income tax system is based on what Marx describes as the (apparent) Trinity Formula of capital-profit, labor-wages, and land-rent. The income tax system is an outgrowth of an economic system that fetishizes commodities and sees relationships between people as relationships between things. It not only hides the exploitation of workers. It misallocates the creation of profit, interest, rent, and dividends—specific examples of the general category of surplus value—in the hands of capital rather than labor. It views workers as being rewarded for their labor rather than the reality of the reward being for their ability to labor and taxes them accordingly.
What the tax system deals with is the phenomena arising in the distribution of surplus value, not its production. As Paul Mattick puts it, “[t] axes are a part of realized income through market transactions…” Paul Mattick, M
The income tax system involves itself with the money that arises from the exchange of commodities and the money value of labor, in other words, the price received for the sale of goods and services in the market place and of labor power in the job market, not recognizing the social relations that these represent. In this way, the income tax system reflects capitalism and reinforces the mystique of capitalism. As Marx said: “The mystification here arises from the fact that a social relation appears in the form of a thing.” K
A commodity is therefore a mysterious thing, simply because in it the social character of men’s labor appears to them as an objective character stamped upon the product of that labor; because the relation of the producers to the sum total of their own labor is presented to them as a social relation existing not between themselves, but between the products of their labor. This is the reason the products of labor become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses. It is only a definite social relation between men that assumes, in their eyes, the fantastic form of a relation between things. M
Further, it is not just that social relations between humans are viewed as relations between things. As Lukács pointed out, the worker’s “own labor becomes something objective and independent of him, something that controls him by virtue of an autonomy alien to man.” L
A world of commodities that the working class created confronts the working class as alien to them and alienated from them. The ability to perform work itself becomes a commodity in the reality, that is, capitalism, and, hence, in the mind of the worker. As Marx said: “What is characteristic of the capitalist age is that in the eyes of the laborer himself labor-power assumes the form of a commodity belonging to him. On the other hand it is only at this moment that the commodity form of the products of labor becomes general.” M
It is not just that this process of reification is going on. It is also that in being paid wages, both the worker and capitalist imagine that what is being paid for is the labor of the worker, rather than his or her labor power. This further form of mystification Marx captures when he says:
We see, further: The value of threes, by which a part only of the working-day – i.e., six hours’ labor – is paid for, appears as the value or price of the whole working-day of 12 hours, which thus includes six hours unpaid for. The wage form thus extinguishes every trace of the division of the working-day into necessary labor and surplus-labor, into paid and unpaid labor. All labor appears as paid labor. In the corvée, the labor of the worker for himself, and his compulsory labor for his lord, differ in space and time in the clearest possible way. In slave labor, even that part of the working-day in which the slave is only replacing the value of his own means of existence, in which, therefore, in fact, he works for himself alone, appears as labor for his master. All the slave’s labor appears as unpaid labor. In wage labor, on the contrary, even surplus-labor, or unpaid labor, appears as paid.
There the property-relation conceals the labor of the slave for himself; here the money-relation conceals the unrequited labor of the wage laborer.
Hence, we may understand the decisive importance of the transformation of value and price of labor-power into the form of wages, or into the value and price of labor itself. This phenomenal form, which makes the actual relation invisible, and, indeed, shows the direct opposite of that relation, forms the basis of all the juridical notions of both laborer and capitalist, of all the mystifications of the capitalistic mode of production, of all its illusions as to liberty, of all the apologetic shifts of the vulgar economists. M
In other words, the appearance makes the actual invisible. Yet this doesn’t make the appearance less real to those who experience it. As God is the creation of humanity, he or she not only appears to exist, he or she exists. It is precisely because the idea of God or the illusion of wages being paid for labor performed comes from the social relations of society that makes them real. As Marx said in relation to religion: “But man is no abstract being squatting outside the world. Man is the world of man—state, society. This state and this society produce religion, which is an inverted consciousness of the world, because they are an inverted world.” Karl Marx,
Money is the universal equivalent. This means that it becomes the mechanism for exchange by embodying the value that is then reflected in prices. Money performs many roles in capitalism. It is the ultimate reification in one sense, obscuring what is ultimately an abstract, unstable and shifting notion that is the relations of production within enterprises, exchange between enterprises, and the complex of political and state activities that operate to enforce its power as a physical fact. What is behind money is not a thing called money but the whole of the social relations of capitalism, or the complex of actions of real people who (re)produce the power of money as an external force. Money is an ideological proxy for the real power of real capitalists, politicians, and bureaucrats.
It is money—in exchange, paid for wages, in capital, indeed in all its forms—that the tax system, including the income tax system, is concerned with.
The tax system is about real appearances but buries the essence. Tax mystification is as to the source of surplus value and, hence, of profit, the exploitative relationship between capital and labor and the categories of taxpayers, categories that attribute income earning to different bodies (e.g., businesses earning profit).
What the tax system deals with is the end result of the market exchange process. It hides the reality of the productive process, the process in which surplus value is created and how it is created. That reality, the reality of value, is obscured by the market and exchange. So the appearance is that workers are paid for all their labor and that capital creates profit. The reality is that it is the unpaid labor of workers that creates profit.
The tax system operates in the realm of appearances. It reflects the appearance that itself is a surface reality but obscures the essence of things. Marx called this dealing with appearances, which arises as a consequence of exchange on the market, “the fetishism of commodities” or “commodity fetishism.” So, in the tax field, the monetized form of value in exchange disguises the reality of all the human relations. Further, in terms of income tax, the creation and distribution of the money form of that value becomes the basis for taxation by the capitalist state, not in the hands of the producers of the surplus value, or unpaid labor, but in the hands of those who expropriate the unpaid labor and to whom it is distributed in the process of circulation. This nonessence reality of companies earning profit, or banks interest, or landlords’ rent is reification, which as Ollman told us is the process of “attributing an independent life to the various forms of value, people succeed in transferring to them certain powers for regulating their own existence.” O
To paraphrase Marx, the sphere of exchange is the realm of equivalence and equivalents. Buyers and sellers exchange as free agents. They are exchanging “their” property and receiving “their” rewards. They look only to themselves and their private interests.
These principles apply in the tax field too. The free market is the basis for income tax, a tax applying to the profit, interest, and rent that arises in exchange and to wages paid. The result is that this fetishism expresses itself in the income tax field with an attempt to tax “ordinary income” of companies and individuals. It doesn’t distinguish between individuals on the basis of their class but on the basis of their income, an incomplete guide to class. It does distinguish between individuals and companies but hides the reality of exploitation and the creation of surplus value. It reifies the relationship by taxing companies as if they had created the surplus value when profit, that is, surface reflection of the surplus value, arises in the course of production and is realized in the process of circulation. It arises from the labor used in producing commodities for the market. Thus, the real human relationships are doubly hidden—in the labor process in production and in the realization process in circulation. Commodities replace humans and corporations make profit, with the human agency and human interactions hidden, except for the wise Board and CEO and other leaders. Company tax applies to the surplus value expropriated by an artificial entity whose existence is the humanization of the inhuman. It all seems so clear. We work 8, 9, or 10 hours a day and are paid for our labor. Yet this is merely an appearance, an illusion. We are paid for our ability to work, our labor power.
We have already been introduced, briefly, to the labor theory of value and the creation of surplus value in the production process. Marx summarized this well when he says:
In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labor, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labor or labor-power. M
The capitalist buys labor power around its value, “the value of the means of subsistence.” As Marx puts it: “The value of labor-power is determined, as in the case of every other commodity, by the labor-time necessary for the production, and consequently the reproduction, of this special article.”
One of Adam Smith’s key insights into judging a tax system was equity. The concept of income not only denies the class nature of its production out of the labor of workers but also makes the nature of our activity a generalized equivalent. We are all earning income rather than one class producing the surplus value through its labor. Shares in that value are then distributed to capital through the process of exchange, that is, the market, based on their capital contributions. That “surplus become profit” or other forms of return on capital is then reinvested in labor power in the form of wages and machinery, factories, and the like. Like the villagers wondering what has happened to their cattle, we should march backwards to the essence to understand the reality. There is no Trinity. There is only one source of income and that is labor and the surplus value they create. By accepting the appearance and reinforcing that appearance at the expense of the essence, the income tax system acts both as a revenue raiser and as an ideological tool hammering home the message of the Holy Trinity.
Using the concepts and approaches that Marx has left us—concepts such as surplus value, labor power, use value and exchange value, things as processes and relations, totality, contradiction and change, the dialectical process including abstraction, the realization of surplus value on the market, and the tendency of the rate of profit to fall—we can clean the windows into the soul of income tax in Australia and in other developed capitalist countries. Armed with a knowledge and a constant process of deepening our understanding—for example, by looking through Marx’s eyes at the process of capitalist production and circulation and the transformation of surplus value into profit, interest, rent, dividends, wages, and the like—we have the opportunity to clean off the centuries of caked-on filth on the windows into the soul of income tax. This wholesale cleaning could include projects not just looking at the system generally through the eyes of Marx but, for example, investigating the neoliberalization of tax policy and tax reform in Australia. It could also examine the role the Australian Labor Party plays, in government, in addressing tax the issues as part of managing capitalism, the question of rent taxes, how Australian tax reform and policy interrelates with, or is part of, wider global trends driven by global changes within capitalism, and why the Australian judiciary undermines or emasculates general anti-avoidance provisions. The foundations of the income tax system—income, source, residence, and the concept of taxpayer—could then be viewed using the tools outlined in this article. Let’s use the tools we have discovered. Our journey has just begun.