I very often see progressive news outlets using the term ‘taxpayer funds’, usually when the government spends on stupid aesthetic nonsense like selfie booths or whatever.
The idea is that if the government ‘wastes’ money on these things, it cripples its ability to spend on public services, welfare, etc. Money is assumed to be a ‘finite’ thing instead of being created and destroyed at will with accounting entries.
There are two ways I wish to attack the term ‘taxpayer funds’ when it is used in the context of government spending:
a. The taxes you pay don’t determine your contribution to the economy.
b. It’s plain wrong about how spending actually works.
Let me start with the first point: the taxes you pay do not determine your worth or your contributions to society. In fact, even in 2023, only 2.2% of the adult population of India file income tax returns. Why? Because the vast majority of Indians, including those whom the mainstream media refer to as the ‘middle class’, don’t even fall into the lowest tax bracket.
This shows that the vast majority of Indians are too ‘poor’ to be considered taxpayers. Yet, their contribution to the economy is just as important, if not more so, than the top 2%. Do we only allow income taxpayers to vote? In ancient pseudo-democracies, the votes of the wealthy or the more landowning class counted more. In pre-Civil War America, only 3/5ths of the black population (who were slaves, constantly working) were counted when determining a state’s total population.1
In many cases, lower-income laborers might receive more in monetary terms from the government through welfare than they pay in consumption taxes like the GST. Yet, their contribution to the economy must be acknowledged. The value they produce for the country is, in almost all cases, more than what they receive from the government.
There is also unpaid labor, for example, mothers without paying jobs who take care of their children. That is still labor, yet the mother doesn’t get anything in monetary terms for it. Sure, their spouse might give her cash, but that can just as easily be considered a ‘gift’ (a transfer payment) as opposed to payment for labor.
Even if you aren’t able to work, you are still human.
In the previous paragraphs, I talked about how the value you contribute to society isn’t determined by the taxes you pay but by how much you contribute in non-monetary terms. This can be anything paid or unpaid; for instance, you could pick up trash and help your neighbors. You aren’t being paid for it, and you aren’t paying any income taxes when you do it.
The idea that your worth is determined by taxes or even the value you contribute is ridiculous. In India, we have millions of unemployed and underemployed people who are willing and able to work but can’t find work. This isn’t their fault; it is a societal failure. Demand for work is determined not by how hard you are searching but by various political and economic factors. See my previous blog on a universal job guarantee in India.
Capitalism makes you feel worthless when you aren’t able to contribute to society by working. Yet, as I previously said, your worth isn’t determined by your job, taxes, citizenship, or anything else but by the fact that you exist.
Nazism, social murder and ‘life unworthy or life’
The Nazis had this term called ‘Life unworthy of life.’ It meant that those who were considered a ‘burden’ on the public deserved to be euthanized.3
Until now, I had talked about the employed and abled-unemployed. Now I want to address those who cannot work due to reasons beyond their control, such as the elderly or people with disabilities.
The Nazis believed that ‘inferior’ people deserved to be killed or enslaved. Sounds like a despicable ideology, right? Yet, we hear rhetoric from neoliberals about cutting pensions or welfare because old people don’t contribute to society. The old and the disabled are seen as a burden on the ‘taxpayer’. We won’t kill them, but we will make sure they can’t afford to live, which is effectively the same thing as euthanizing them.
Look at this Nazi propaganda poster:
We hear that nonsense all the time. The ‘national community’ is replaced by ‘taxpayers’, and liberals use dog whistles and abstractions to hide the fact that it is a very similar policy.
“Social murder” was a term coined by Friedrich Engels. If you don’t know him, you might know his friend, Karl Marx. It referred to unnatural death that occurs due to social, political, or economic oppression. He explains it much better than I possibly could:
When one individual inflicts bodily injury upon another such that death results, we call the deed manslaughter; when the assailant knew in advance that the injury would be fatal, we call his deed murder. But when society places hundreds of proletarians in such a position that they inevitably meet a too early and an unnatural death, one which is quite as much a death by violence as that by the sword or bullet; when it deprives thousands of the necessaries of life, places them under conditions in which they cannot live – forces them, through the strong arm of the law, to remain in such conditions until that death ensues which is the inevitable consequence – knows that these thousands of victims must perish, and yet permits these conditions to remain, its deed is murder just as surely as the deed of the single individual; disguised, malicious murder, murder against which none can defend himself, which does not seem what it is, because no man sees the murderer, because the death of the victim seems a natural one, since the offence is more one of omission than of commission. But murder it remains.
Friedrich Engels, The Condition of the Working Class in England4
I believe that it is the duty of society to ensure that those who can’t work are provided for. This means providing them with basics like decent food, clothing, shelter, healthcare, education, etc. Those who call for social murder must be treated like who they really are: Nazis.
At less than full employment, any additional consumption contributes to the economy as a whole.
What I said previously about those who cannot work still applies, but there are some additional points I want to discuss pertaining to an economy with less than full employment, which applies to most capitalist economies.
Under capitalism, provided the state isn’t maintaining full employment through its policies, there will be unemployment and underemployment (India is a very good example). This helps keep wages down and allows capitalists to exploit workers more, and it also prevents workers from organizing since the capitalist could just fire them and hire someone else.
This leads to low demand for goods and services. People who can’t work cannot purchase many goods and services, depending on others like family members or the government. Similarly, those without purchasing power (as mentioned in my previous blog) cannot contribute to demand. Capitalists, who tend to exploit workers for their surplus value, don’t spend much of their income on goods and services themselves—they have a low propensity to consume and thus save much of their income. Workers, especially lower-income workers, tend to spend almost all their income, sometimes even being forced into debt because of their inability to save.
Since demand backed by the ability to pay determines whether a capitalist expands production and creates employment, giving ‘free’ money to the poor, disabled, unemployed, etc., contributes to the economy by creating demand for goods and services.
But what about consumption taxes?
Until now, I have mainly talked about income tax and not consumption taxes like the GST. As mentioned previously, most people in India don’t pay income tax. However, a much larger part of the population pays consumption taxes like the GST. GST is considered a ‘regressive’ tax because the poor pay a higher proportion of their income in such taxes than the rich do. The poor spend a much larger share of their income on the consumption of essential goods and services.
Many governments, including ours, have set consumption taxes ridiculously high. Why? The idea is that by reducing taxes that the rich pay, like corporate tax or capital gains tax, the private sector will have a greater incentive to invest in production. And to ‘pay for’ a reduction in such taxes, the government increases GST to ensure that the fiscal balance doesn’t change.
This is based on the false premise that investment is determined by profits, when in reality it is determined mainly by aggregate demand (total demand for goods and services backed by the ability to pay). If the capitalist sees no demand, they won’t invest. GST is a leakage of consumption; it reduces the amount of income available to spend on goods and services and thus reduces purchasing power. So ironically, by keeping GST rates so high, the government is actually discouraging investment and strangling the poor.
I’m not anti-tax; taxes are a valuable tool in ensuring that there is demand for money and for the government to mobilize resources without causing inflation. The taxes on essential goods and services must be lowered to 5%. The government must realize what taxes are actually for.
Taxes don’t pay for anything if you are the currency issuer
In the previous section, I mentioned how the government reduced corporate taxes and increased consumption taxes in an attempt to induce investment. I also mentioned that the government ‘paid for’ the decrease of one tax by increasing another.
The reason why I put ‘paid for’ in quotes is because the Indian Central Government is the sovereign issuer of the Indian Rupee. Everyone else (including sub-national governments like state governments, panchayats, etc.) are currency users; they have to use the money which the Central Government wants to tax.
This means the Central Government has the power to create whatever amount of money it wants. Any sovereign government issuing its own fiat currency has that power. Thus, there is no real reason for the government to ‘pay for’ a decrease in corporate tax by increasing GST.
Why does it do so? Because the government is stuck in the mainstream mindset that taxes pay for sovereign government spending, and because decreasing taxes without a ‘counter’ increases the fiscal deficit. There is nothing inherently wrong with a fiscal deficit; a government deficit is a non-government surplus.
The claim is that foreign investors hate fiscal deficits above a certain percentage, and if the government increases the deficit too much, they will refuse to invest or, worse, pull their investments out, draining foreign exchange reserves, causing exchange rate depreciation, increasing import costs, and leading to passthrough inflation, similar to what happened in India around 2013.
The thing is, without government spending, India will not be able to become self-reliant and reduce dependence on oil imports. The real solution is to increase fiscal deficits with increased government spending, combined with appropriate taxes to ensure the economy isn’t pushed beyond its capacity. If there is an increase in capital outflows, let the currency slowly depreciate to allow the economy to adjust. Increase import duties and tighten capital controls if necessary. Otherwise, India will be forever stuck in a state where only 2.2% make enough to pay income tax.
That’s all.
- https://www.thirteen.org/wnet/slavery/experience/legal/docs2.html ↩︎
- I’m aware that citizenship itself is a contentious issue. Documented and undocumented immigrants all contribute to the society yet they aren’t allowed to vote but that’s whole another discussion. See: https://peoplesdispatch.org/2024/01/26/after-expelling-palestinian-workers-israel-turns-to-the-global-south-for-labor/
↩︎ - https://en.wikipedia.org/wiki/Life_unworthy_of_life ↩︎
- https://www.marxists.org/archive/marx/works/download/pdf/condition-working-class-england.pdf ↩︎