CPA - Australian Marxist Journal

This is an abridged version of a Monthly Review editorial in November 1984. It is republished here with the permission of Monthly Review. The analysis specifically referred to in the original editorial is by Medlen, G. "Corporate Taxes and the Federal Deficit", pp. 10-26 of the same issue, Vol.36, No.6, 1984.

"To modern private property corresponds the modern state, which has been gradually bought by property owners through taxes, has fallen entirely in their hands through the national debt, and has become completely dependent on the commercial credit they, the bourgeoisie, extend to it in the rise and fall of government bonds on the stock exchange."
Marx and Engels
The German Ideology

According to some analyses, the dilemma of the modern capitalist economy is that it has a potential for accumulation which is far greater than its ability to make profitable use of the additional capital that realisation of this potential would provide.

Moreover, as the economy grows over time, as income rises and the accumulation potential increases, the dilemma tends to become steadily more acute.

Given this situation, the logical course for the state in a mature capi talist society would be to implement policies that would permit the accu mulation process to go forward at a pace both sustainable and consistent with the reasonably full utilisation of available human and material resources.

Take the USA, for example, the wealthiest of the world's capitalist economies. It entered the 1950s with a tax structure which, while not specifically designed to facilitate the accumulation process, was at least not in blatant contradiction with its requirements.

Corporation taxes were high both as a proportion of corporation profits and as a proportion of federal revenues, and capital accumulation was proceeding relatively smoothly and rapidly.

Given the generally reactionary tone of the times, the owners and managers of the big corporations, consolidating their control over the government through the Eisenhower administration, set about toning down or reversing the economic policies inherited from the 1930s and 1940s. Taxation was of course high on the agenda.

Beginning in the 1950s right down to the present time the burden of taxa tion on corporations has been steadily reduced and at the same time the whole tax structure of the country, including the state and local levels, has been shifted in a regressive direction, culminating in the orgy of tax bonanzas for the rich handed out by the Reagan administration with the help of a complacent Congress.

Due to numerous forces operating on the economic system, a long period of stagnation followed. Any policy to counteract this would have to focus on pumping up demand for goods and services — either consumer goods or producer goods or both.

Ironically, many of the regressive tax changes over the last quarter century have claimed to be directed at this goal. Some of them — permitting the faster depreciation of capital assets, and granting investment tax credits — are supposed to operate directly on investment through making it more profitable.

Others are supposed to operate indirectly by giving more money to the rich who will then presumably save and invest more. Counteracting stagnation by such means is thus a bit like putting out a fire by pouring oil on the flames.

Given these circumstances, the only practical way for the government to pump up demand is to spend more than it takes in, i.e. by running deficits.

The stimulating effect of a given deficit, however, is reduced by the dampening effect of a regressive tax structure, that is, one that transfers income from lower income people (spenders) to higher income people (savers).

And when, as in recent years, there is a trend towards an increasingly regressive tax structure, it follows that deficits will have to grow just to maintain a given level of stimulation.

Pumping up demand through deficits is thus like pumping up pressure in a leaky tire. And if the leak is getting bigger (i.e., if the tax structure is getting more and more regressive), you have to pump harder to stay even, and still harder to get ahead.

One must keep in mind the fact that the national debt (basically in the form of government bonds and notes) is owned for the most part by financial institutions, corporations, and upper-income individuals.

These are the recipients of the interest paid on the national debt, while the revenues out of which the payment are made are extracted from the body of taxpayers as a whole, including the vast majority of middle-and low-income receivers.

It follows that as long as interest rates remain high, a growing national debt is the most efficient mechanism for redistributing income from the lower to the higher reaches of the income structure.

Clearly, this is an untenable situation which is bound sooner or later to culminate in a profound crisis affecting pretty much all aspects of the US economy and society.

What kind of program in the area of taxation would be an appropriate response to the problems facing a government caught up in such an acute crisis?

The problem here is not how to reform the tax code, but rather to change the whole disastrous trend of policy that has prevailed throughout most of the post-Second World War period.

What would be needed at the very outset would be a dramatic gesture signalling to the population as a whole that an era had come to an end, the era of kowtowing to capital and hoping for trickle-down benefits for everyone else.

And for this what could be more appropriate than an immediate announcement of a new beginning consisting of measures combining both symbolic and substantive significance:

first, the imposition of a steep rise in the rate of corporate income tax; and
second, repeal of federal taxes impinging on consumer goods and services.

What kind of additional measures should follow, and how soon, would depend on the circumstances of the time, but at any rate there should be no attempt to play down the necessity of a sweeping fiscal reform designed not only to eliminate the glaring inequities of the present system but also, and no less importantly, to make it at least possible for the economy to function well enough to meet the basic needs of the population — needs which at a minimum include jobs for those willing and able to work and a decent income and living conditions for everyone.

Till now all that has been offered is a mishmash of half-baked schemes and rescue operations.

The ruling class, having forgotten what it had only half learned from the Great Depression, is as vulnerable as its predecessors.

The nature of the world crisis was little understood a half century ago.

Today, in contrast, there exists a rapidly evolving body of socially available knowledge that both clearly identifies this crisis as a crisis of capitalism and begins to direct the consciousness of humanity to the unavoidable question of our time: how to survive under capitalism while at the same time working to replace it with a livable human society.

Anyone who gets around this country knows there are subversives everywhere — Marxists of various kinds, left liberals, troubled religionists, radical populists.

The ideology of the ruling class naturally rejects this understanding, perhaps more emphatically in the United States than anywhere else.

In this it has all the support and assistance of a large and vocal intelligentsia which holds all the powerful and prestigious positions in the country's cultural apparatuses.

But its hegemony is far less solid and complete than it seems to be.

Most of them keep a low profile under present conditions. But with a few exceptions they know a crisis is on the way, and when it comes many of them will be shocked into playing, or at least being ready to play, a more activist role.

What we are saying is that the crisis will create the opportunity and at least the possibility to launch a New Deal with stronger theoretical underpinnings than the original New Deal of the 1930s and hence a better chance of charting a course that really responds to the interests of the great majority of working people.

If we assume an initial period in which the ruling class is too scared and disoriented to mount an effective opposition, sufficient successes may be achieved through emergency measures — especially massive job programs — to rally the political support necessary to give the new course a meaningful lease of life.

Then again, as in the mid-1930s, the stage would be set for great struggles to determine the shape of a longer-run future.

The time to prepare for these struggles is now. They may be on us sooner than you think.

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