Good guess, but it has more to do with the role of taxation in today’s political economy.
As Ben Franklin said, nothing is certain except death and taxes. Taxes have been around since long before capitalism, although they were not always called taxes and they were not necessarily based on income. People have always been required to contribute to the government’s treasury, whether to buy silks for the Empress of Rome or to buy ships for the explorers of Portugal. But one thing is constant: they always serve a political purpose, and are usually a transfer of money from one group to another.
U.S. taxes: the good, the bad, and the ugly
With taxes due on April 17, it is income taxes that are on our minds. In the U.S., a federal tax on incomes was not legal until 1913 (before that, a uniform tax across all states was considered unconstitutional; revenues were raised mostly through tariffs on imports), when it became clear that such a system of taxation was needed to keep the country solvent. At first, income taxes were only for those able to pay. In the 1920’s, only the top 8% paid.
Under pressure to help those affected by the Depression, New Deal programs were passed that supported the poor. To pay for them, a Wealth Tax of 75% was levied on those making more than $5 million a year; the principle of progressive taxation was strong. By 1939, still only about 5% of workers paid taxes. It wasn’t until World War II that lower paid workers also starting paying income taxes, and you’ll be surprised to know that they were willing to do so. In 1942, Irving Berlin rhapsodized,
I paid my income tax today
I never felt so proud before
To be right there with the millions more
Who paid their income tax today.
I’m squared up with the U.S.A.
See those bombers in the sky?
Rockefeller helped to build ‘em, so did I!
Well, that sentiment may be a bit over the top, but workers generally considered taxes more of a patriotic duty than a burden, like using ration stamps for butter and bacon. During the war, the top income tax rate was over 90% – and any politician opposing progressive taxes would have been defeated.
However, while taxes were unifying in war time, in the U.S., taxes have also been used for division, particularly in creating and reinforcing the racial divide. In the 1850’s during the Gold Rush, the Foreign Miner’s Tax was paid by the Chinese, and not the Irish or other white foreigners who also flooded to California, because only whites were eligible for citizenship. By 1870, this tax accounted for at least 25% of California’s annual budget, but the Chinese who paid the tax were not eligible for any of the government jobs or benefits created from the revenue.
Sound strangely familiar? Today, immigrants, whether documented or not, pay taxes – income, payroll, sales and excise taxes – but they are also ineligible for government benefits. In other words, non-white immigrants have before and still do subsidize the benefits going to whites. The Social Security Administration’s Chief Actuary, Stephen Goss, estimates that undocumented workers have paid between $120 and $240 billion into the Social Security trust funds, between 5 and 11% of their balance; but these workers are not eligible to receive benefits. Talk about taxation without representation!
Another example is the poll tax, which was used in the South to deny African Americans the right to vote, to prevent them from having the power to make policies that could have improved their conditions. And today, taxes are still used to exacerbate racial inequality. Thomas Shapiro, an expert on race and wealth, calls today’s tax code “the U.S. wealth budget,” helping some accumulate wealth while not helping others.
The 2001 Bush tax cuts reduced the tax rate on incomes from investment assets to BELOW the tax rate on income from working; and black workers are unlikely to have an investment portfolio. And while you might think that the pre-tax deductions for home mortgage interest, retirement accounts and college savings are good for everyone, don’t be fooled, because these accrue mostly to people who are upper-middle class or richer; poorer folks of color can’t afford such accounts. Such tax changes are largely responsible for the sharp uptick in the black/white wealth gap.
But how is a pre-tax deduction a government “subsidy?” The government isn’t paying these rich guys anything, are they? Well yes they are. These deductions, called “tax incentives,” lessen the amount of income on which you are taxed. This is like having a son at home who has a good job, and not making him contribute to the rent or for food, requiring the rest of the family to subsidize his share. In the U.S., we let our family members who have the most get away with not contributing their fair share, at the expense of those with the least. In 2009, the Annie E. Casey Foundation and CFED reported in “Upside Down,” out of $384 billion in tax subsidies, more than half went to the top 5% of income earners, families making more than $167,000 a year. When it came to homeownership, $1.25 billion was spent directly helping the poor buy and keep homes, while $133.5 billion was given in tax breaks to those already owning homes through the mortgage and property tax deductions, and not requiring them to pay taxes on the profit made on the sale of their primary residences.
A Four-Letter Word
Pressure from the people’s movements affect policies, from tax rates to the kinds of programs they fund. For example, the 1960‘s Civil Rights movement and anti-poverty campaigns resulted in the tax-funded Medicaid and Medicare programs. By the 1980‘s though, beginning with Reagan’s presidency, with the decline of social movements and with the beginnings of corporate globalization, the capitalists were able to flex their muscles and give workers a double whammy: they cut tax rates for the capitalists, and they cut programs for workers. Two rationales were given: if the wealthy have more money, they argued, they will invest more in job creation and the benefits will “trickle down” all the way down to the bottom.
Instead, the wealthy used the extra money to gamble in the investment markets, leading eventually to the current meltdown, and those at the bottom sank even lower. Reaganites also argued that programs for the poor were causing the government to operate at a deficit. But they didn’t look at the cost of the Cold War or the subsequent interventionist wars, nor at the figures above relating to how much the government spends on tax incentives for the rich. Corporate profiteers were able to re-define freedom to mean freedom for capitalists to do whatever they damn well please and to make “tax” a four-letter word in the public’s consciousness. It’s brainwashing when we’re made to believe through ceaseless repetition of a lie that that the lie is the truth.
A Better Tax Policy is Possible
It’s just been noted that taxes were more progressive and social programs more extensive in the U.S. from the 1930‘s to the 1960‘s, and isn’t it true that some capitalist countries have great tax-funded social programs? Isn’t it possible to have a better system even under capitalism?
In many countries, especially those with influential social-democratic parties, there are excellent social safety nets like unemployment payments for as long as you are out of work (e.g. Sweden) or health insurance for all (e.g. Canada and most European countries). These countries have higher individual tax rates than the U.S., but most pay the taxes willingly because their taxes pay for benefits that give all citizens some sense of economic security.
However, these countries still are structured around the exploitation of workers by the owners/controllers of land, raw materials, and other productive forces. There’s still a big gap between the classes, exclusion of non-citizens and immigrants, and they still extort resources from less powerful countries in the third world, thereby increasing the world’s racial wealth gap.
Up front, let’s just say that under socialism, there still will be taxes. However, contrary to taxes under capitalism, these will be used to lessen inequality, and to ensure a standard of well-being for all. Even under U.S. capitalism, I know that I must contribute as a member of society, and that if I don’t like where all my tax dollars are going (which I don’t!), I should fight to ensure that they go where I want, rather than support tax cuts. But I look forward to the day when I can say as joyfully as Irving Berlin, “I paid my income tax today!”
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