Macdonald Archive   |   Trotskyist Writers Index   |   ETOL Main Page

Dwight Macdonald

Sparks in the News

(25 July 1939)

From Socialist Appeal, Vol. III No. 53, 25 July 1939, p. 3.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Taxes and the New Deal

Taxation is a notoriously dull subject. Stuffy Republican journals print lengthy articles about it, but the left-wing press rarely gives any attention to the subject. This would seem to be a great mistake, for of all the tricks in the bag of that master shell-game politician, Franklin D. Roosevelt, of all his ingenious devices for fooling the masses, taxation is in some ways the most effective.

A recent Gallup poll found that one out of every four persons asked actually thought he paid no taxes at all. No less than 71% of these persons who thought they paid no taxes said they were for Roosevelt – as against 54% of those who knew they were paying taxes. In other words, the less a citizen knows about taxation, the better he likes the New Deal.

There is a general impression, especially among the lower income groups, that the New Deal “soaks the rich”, that it has been redistributing national purchasing power by collecting taxes from corporations and millionaires and spreading these billions out over the farmers, workers, unemployed. Actually, the New Deal has financed its spending programs not by heavy taxes on the rich – as, for example, the British Government has been doing ever since the war – but by selling Government bonds and notes to the banks. This amounts to postponing the whole question as to what class shall pay for the New Deal’s social reforms, since the bonds will not have to be paid off for many years.

But this is just the beginning of the story. Most of those who told the Gallup investigators they paid no taxes were earning $20 a week or less. Calculations show that a person getting $20 a week pays taxes today of no less than $100 a year – or five weeks’ pay. The reason, of course, these people thought they were not being taxed was that they paid no income taxes or other direct taxes. The joker in the deck, the elusive pea under the shell that Franklin D. manipulates so cleverly, is “hidden” taxation levied on consumption: sales taxes, tobacco, liquor, gasoline, and a thousand and one other taxes.

The wartime taxes on amusements, playing cards, etc., first awakened legislators to this rich mine of revenue. Consumption taxes have two great advantages: they bear most heavily on the masses, and hence are popular with the ruling class; and yet, extorted in driblets of pennies and usually without the consumer being aware of them, they awaken no great popular protest.

Pennies become dollars very fast, however, in this game. The Northwestern National Life Insurance Co. has published a table of indirect taxes paid by an average family living on $150 a month ($1,800 a year):

Corporations: $1,300,000,000 – Consumers: $3,400,000,000

Of the $14,200,000,000 taxes collected by local, state and national governments last year, no less than $8,000,000,000 was in the form of these hidden, indirect taxes. (The National Consumers Tax Commission, as reported in the N.Y. Times of June 19, last.) It is true that local and state governments have made even greater use of these “hidden” taxes than has the New Deal, but F.D.R. is learning fast.

In Workers Age of June 24 last, Cecil Owen, publicity director for Labor’s Non-Partisan League, pointed out that in 1929 corporations paid $1,200,000,000 in Federal taxes while consumers paid $1,000,000. In 1938, after six years of New Deal “reform”, corporations paid $1,300,000,000 and consumers $3,400,000,000. True, corporations pay less today because they are taxed on profits and profits are less than in 1929.

But the point is that the New Deal has raised the rates of taxation on business very little. For all the outcry about the undistributed profits tax, it produced a mere $75,000,000 a year and the effect of its recent repeal by Congress has been practically nil either on business or on Federal revenues. On the other hand, the New Deal has piled on the hidden taxes to a towering total. Tobacco and liquor alone last year yielded almost as much revenue as the entire corporation tax.

But the real discovery of Franklin D. is the payroll tax now being collected under the pretense of setting up a “reserve fund” for the old age and unemployment insurance provisions of the Social Security Act. As John T. Flynn demonstrated in The Social Security Reserve Swindle, an excellent article that recently appeared in Harpers, these payroll taxes are actually being used to pay the current expenses of the Federal government, and the “reserve” idea is a gigantic hoax and fraud. The swindle is so barefaced, indeed, that the New Deal has been forced to back down a bit: Congress recently was forced, by mounting public protests, to lower the rate of these taxes. The daring and scope of this particular bit of shell-game New Deal politics can be grasped if one remembers that last year these payroll taxes yielded no less than $1,500,000,000, practically all of which was at once spent for current governmental expenses. And the rates, even after the recent lowering, are adjusted so that this sum will increase greatly in the next few decades.

 
Top of page

Macdonald Archive   |   Trotskyist Writers Index  |   ETOL Main Page

Last updated: 4 March 2016