Labor, Capital, and State Redistribution

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Jan 28, 2016 - Full Terms & Conditions of access and use can be found at ... by Tonak and Shaikh3 based on a calculation of net taxes, or more ... the fact that a portion of this money "does not really give an income to ... social insurance contributions of every kind, whether charged to work- ..... Although it is true that the ...
International Journal of Political Economy

ISSN: 0891-1916 (Print) 1558-0970 (Online) Journal homepage: http://tandfonline.com/loi/mijp20

Labor, Capital, and State Redistribution Diego Guerrero To cite this article: Diego Guerrero (1992) Labor, Capital, and State Redistribution, International Journal of Political Economy, 22:3, 46-71, DOI: 10.1080/08911916.1992.11643843 To link to this article: http://dx.doi.org/10.1080/08911916.1992.11643843

Published online: 28 Jan 2016.

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Date: 21 March 2017, At: 13:11

DIEGO GUERRERO

Labor, Capital, and State Redistribution The Evolution of Net Taxes in Spain (1970-1987) Some interesting analyses of the pattern of public spending in Spain over the last few decades may be found in No. 37 of the periodical Papeles de Economia Espanola, in particular as regards the comparative study of the periods corresponding to the first governments of the "Transition" and the Center Democratic Union (UCD)-1975-1982and subsequently the governments of the Spanish Socialist Workers Party (PSOE), that is, from 1982 to the present. For example, we will find that during the period 1982-1987, the mean annual growth rate of items so little "social" as national defense or interest on the public debt increased compared with the period 1975-1982, the first rising from 3.4 percent (in constant pesetas) to 4.5 percent, and the second soaring from 12.5 percent to 34.4 percent Moreover, this occurred at a time when numerous items with a clear social content were suffering notable cutbacks: the growth rate of pensions declined from 8.7 percent to only 4.7 percent, unemployment benefits from 29.3 percent to 4 percent; the increase in spending on education and health care fell from 6.9 percent and 3.4 percent to 6.6 percent and 301 percent, respectively; and growth in investment in the infrastructure declined from 6.0 percent to 3.6 percent (Alcaide, 1988, p. 13). These facts fit into a broader pattern of decline in the growth rate of public spending overall, as implemented by the PSOE (5.2 percent compared with 7.6 percent for Diego Guerrero is in the Department of Applied Economics-V, Faculty of Political Science and Sociology, Universidad Complutense de Madrid (Somosaguas Campus). 46

FALL 1992

47

the preceding period), even as the GNP growth rate rose from 1.4 percent to 2.9 percent annually, which in large measure explains the 2 percent contraction of the ,public deficit in percentage of the GNP (1987 compared with 1982). However, interesting though data on the functional and economic distribution of public spending may be, what the above-mentioned article specifically lacks is what we might call a "class," or a "capitallabor" analysis of spending,1 and in particular, a study of the distribution of public spending by social classes. Such a study, when combined with a class analysis of public revenues, can provide an excellent foundation for a global analysis of the role of the public budget in the distribution and redistribution of income, and more generally for a socioeconomic characterization of the function of today's public sector (the so-called "welfare state") in the development of capitalism. The recent period has seen a number of studies of this sort, especially in the United States.2 Our fundamental reference here is the model developed by Tonak and Shaikh3 based on a calculation of net taxes, or more generally net transfers, part of which falls on labor and part on capital, taken as the gross fiscal burden sustained, minus the quantity of public expenditures received, by labor and capital, respectively, such that the sum of the two should be zero (or in the case of an unbalanced budget, equivalent to the size of the respective deficit or surplus). The difficulty of an analysis of this type is that it requires attributing 100 percent of public revenues and public expenditures to one or the other kind of income.4 Actually, the method used in the present article to attribute public revenues and public expenditures does not wholly coincide with that used by Shaikh and Tonak. Before turning to the case of Spain, therefore, I should explain the crux of the theoretical model chosen here. The theoretical model The categories used correspond to those used in Marxist political economy. Therefore, calculations are not only expressed in tenos of "remuneration of wage earners," "surplus of exploitation," and GNP, but are also based on the categories of variable capital (v), surplus value (s) and national income (N!), the latter being the new value created annually by work effected in the productive sector. Since for workability'S sake the model is conceived in tenos of a pure capitalist economy, the

48

INTERNATIONAL JOURNAL OF POmICAL ECONOMY

NI5 is distributed between the totality of wage earners or the working class (who receive the total wages, or variable capital, advanced by the capitalists vI), and the bourgeoisie (who appropriate surplus value sl).6 As for variable capital,7 no single definition of its magnitude exists; there are several, depending on the measure in which state intervention is taken into account. 8 In fact, there are three different approaches to quantifying the magnitude of variable capital, "the portion of capital transformed into labor power" (Marx, 1867, vol. 1, p. 252) in an economy marked by the presence of the state (which levies either direct or indirect taxes as well as social insurance contributions, and spends money on social services and other public expenditures):

1. vI: From the standpoint of the overall process of capitalist production, summed up in the schemaM-C ... p ... C'-M', the proposition applies that the "sum total of money spent to purchase productive labor power functions as capital" (Moseley, 1986, p. 173). Therefore, the fact that a portion of this money "does not really give an income to workers is irrelevant," or, put in other terms, it merely means that, on the one hand, "the totality of taxes levied on the wages of productive workers is a secondary operation that falls outside the circulation of capital," while, on the other hand, "public expenditures that presume an income for productive workers obviously do not function as capital" (Moseley, 1986, p. 173). Consequently, from this first perspective, variable capital is equivalent to the total remuneration (Le., wages plus social insurance contributions of every kind, whether charged to workers or to enterprises) of productive workers. 2. v2: Conversely, from the standpoint of workers' disposable income, it may be argued that "a sum of money must be considered variable capital if and only if this money is translated into income by productive workers" (Moseley, 1986, p. 173), since it is this income that fmances the acquisition of the means of consumption that guarantee subsistence to the working class. Therefore, to quantify variable capital, the direct fiscal burden on wages (direct taxes and total social insurance contributions) must be subtracted and the income provided by the state through transfers to the workers must be added: this is the position of Shaikh and Tonak (Sharpe also subtracts workers' savings), but not that of Yaffe, Wolff, and Mage, who subtract taxes but do not add services received by wage earners, since they consider this to be part of surplus value (Yaffe and Wolff) or constant capital (Mage).

FALL 1992

49

3. v3: However, there is also a third way to express the size of variable capital. When Marx speaks of "the material existence of variable capital, i.e., the totality of the means of subsistence that this capital represents for the worlcer" (Marx, 1867, vol. II, p. 756), he is not necessarily referring to the same thing except insofar as he identifies the value of labor power with the value of the means of subsistence (Marx, vol. 1, pp. 207, 209), since the value of the same quantity of means of subsistence depends, inter alia, on the amount of indirect taxes imposed on commodities. Consequently, in this third point of view, variable capital would be equivalent to the magnitude resulting after subtracting from v2 the sum of indirect taxes imposed on worlcers' consumer goods and adding to it the subsidies (and other equivalent public expenditures) that help to render them cheaper. If, following Moseley and Delaunay, the first approach (vI) is adopted in quantifying the primary distribution of income between capital and labor, we will have a national income (Nil) divided at the very moment of its production between vI and sl. If we now move from the creation of value and national income to the formation of total disposable income (NI2), we may divide this total between the disposable income of workers' families (v2) and the disposable income of bourgeois families or by enterprises (s2). Finally, the moment of utilization of disposable income (NI3) implicates a third division of national income between effective consumption by the worlcing class (v3) and consumption by the capitalist class plus capital accumulation (s3). This moment is easily obtained by dividing state intervention in the economic cycle into two phases9 (in respect of both expenditures and revenues): in the first phase the state levies direct taxes and finances a part of the disposable income of families; in the second phase, the state levies indirect taxes and finances part of consumption and investment. 10 In Figures 1 and 2, the well-known schema for the circular flow of income (see, for example, Samuelson, 1980, p. 192) is rounded out by the two moments of state intervention (Figure 1), and the use of some of the elements of a class analysis of said intervention (Figure 2).11 The magnitude of public revenues related to income generation (11) is composed of Ivl (the portion redounding to vI, i.e., the working class) and Ikl (the part redounding to the bourgeoisie, sl). The state redistributes this portion of income, restoring to the two classes a total

SO

INTERNATIONAL JOURNAL OF POurlCAL ECONOMY Consumption

Famines

Firms

·Social" spending

Incomes

Figurel.

of GI, comprising, in tum, their respective disposable incomes (Gvl will be for the working class; Gkl for the bourgeoisie).12 The result of this first redistribution by the state will be a first modification of the value of variable capital and of surplus value, which will be, respectively, v2 and s2. As for the utilization of disposable income, each class again transfers to the state a new portion of its income (the working class, Iv2; the bourgeoisie, IKl; or a total of n), basically through the consumption (investment is assumed to be untaxed) of goods and services subject to indirect taxes, but also through other taxed headings not directly linked to production (e.g., taxes on unearned income, inheritances, etc.). Finally, the state returns to the two classes specific amounts of value (Gv2 and GKl, respectively, or a total of G2), as subsidies, capital transfers, and purchases of commodities (consumer goods and capital goods). Through this new redistribution we have v3 (net total consumption of the working class) and s3 (sur-

Financial

(families)

urgeoisie

2.

l

v3

53

Working class

~~

(firms)

s

v1

Wages

Inc

52

INTERNATIONAL JOURNAL OF POLffICAL ECONOMY

Figure 3. The cycle of national income and state intervention in two phases, in relation to the distribution between labor and capital. vI

01

Ivl

Ikl

Gvl

Gkl

02

v2

1v2 Gv2

Ik2 Gk2

v3

53

Legend: v: variable capital, and s, surplus value, in the three moments. !: generation of income, 2: income available for consumption and saving; 3: spending (consumption and accumulation); Iv!: items 1+2+3; Ild: 4+5+6+7; Gvl: 8+9+10; Gkl: 11+12; Iv2: 13+14+15; Ik2: 16+17+18+19+20+21; Gv2: 22+23+24+25; Gk2: 26+27+28+29 +30+31 (see text for the defmition of each item).

This model presupposes a balanced budget (I = G) and, moreover, balanced in both phases, such that II = Ivl +Ikl = Gvl + Gkl = 01, andI2 =Iv2 +Ik2= Gv2 +Gk2 = 02. Thus, national incbme (RN) = (vI + 51) = (v2 + 52) = (v3 + 53). In this context, the net tax on the working class is defined as !Nv =Iv - Gv = (Iv! + Iv2) - (Gvl + Gv2); and the net tax on the bourgeoisie is defmed as: INk = Ik - Gk = (lk! + Ik2) + (Gkl + Gk2). With a balanced budget, INv = - INk, which indicated that one of the two classes finances the net transfer of the state to the benefit of the other, in which case !Nv + INk = O. If it is assumed that a deficit or a surplus exists in the budget,then!Nv + INk = deficit (or surplus).

plus value consumed and accumulated for capital). The different phases through which income passes from its creation to its consumption in a pure capitalist economy would be configured as shown in Figure 3. As regards the net tax on the working class, it is clear that:

FALL 1992

53

NTv = Iv - Gv = (/vl + Iv2) - (Gvl + Gv2), and, accordingly, the net tax on the bourgeoisie would be:

NTk =Ik - Gk =(Ikl + Ik2) - (Gkl + Gk2).

The Spanish case: a first approximation We may now apply our model to the Spanish case, retaining the double simplification of making no distinction between the petty bourgeoisie and the bourgeoisie, and of identifying the working class with the totality of wage earners and the unemployed, with the object of obtaining a concrete quantification of each of the economic variables involved. The task is to attribute each tax and other nonfinancial revenues of public administration to one of the two classes, and to do the same with each of the headings of the public debt. Of course, this study is concerned with obtaining only a first approximation, in which we are interested mainly in rendering explicit the assumptions and the specific methods of attribution used, although we knew that the analysis could-and in a second approximation, should-be based on more detailed specifications and subdivisions. The data on revenues and expenditures are taken from Alcaide (1988) (see appendix), rounded out by others taken from the Spanish National Accounts and the Bank of Spain. Actual ·series of national income, variable capital, surplus value, and the like, likewise in the statistical appendix, are also used. The primary distribution of income occurs between variable capital (the sum of the remuneration of wage earners in fmancial and nonfinancial finns), vI, and surplus value, s1. In reality, the workers only receive a part of the total vI (the net wage received from finns, nwf); the remainder, lvI, is transferred to the state. In the case of Spain, Ivl can be defined as the sum 13 of I, 2, and 3, where (1) 100 percent of social contributions; (2) 100 percent of the taxes on labor income (of IRPF); (3) 50 percent14 of ODT ("other direct taxes," such as rural and urban taxes, tariffs, and in general the rest of the specific small minor taxes of IRPF and taxes on inheritance, on corporations, and on lands and ground plots). In tum, 4, 5, 6, and 7 (the sum of which is Ikl) are imposed on surplus value in this first phase; (4) 100 percent of corporate taxes; (5) the remainder of IRPF (income that is distinct from income from wage labor); (6) the other 50 percent of other direct taxes;

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INTERNATIONAL JOURNAL OF POmlCAL ECONOMY

and (7) interest, dividends, and other income received by public administration. Thus, in this first installment the state receives I1 (= Ivl + Ikl), which it uses to pay Gl (= Gv1 + Gkl). Gv1 is composed of: (8) 100 percent of unemployment benefits, UB; (9) the totality of pensions paid to the working class, PW, calculated as a percentage of the total expenditure on pensions 15; (10) net wages received by functionaries, nwa. As regards state payments to capital (Gk1), it is the sum of (11) the rest of pensions (Le., pensions not received by workers): Pk, and (12) 100 percent of the interest paid on the public debt, iPD. Once this first redistribution of income is accomplished, the absolute and relative magnitudes of variable capital and surplus value are transformed into v2 and s2, that is, variable capital available for consumption and surplus value available for consumption and accumulation, respectively. From v2 and s2 the state levies new funds: Iv2 and Ik2. The first magnitude, Iv2, is calculated as the sum (13) of a fraction of the taxes on production and imports (tpl), a fraction yielded by the quotient (v2/ipc) , where ipc is internal private consumption 16; (14) the same percentages of diverse regular transfers received (drtr) by the state from the private sector (lotteries, betting, etc.); (15) identical percentage of capital transfers received (ktr) by the state. Ik2 is obtained as the sum of the remaining percentage (Le., 1-(v2/ipc» from tpi; (17) from drtr and (18) from ktr; (19) 100 percent of taxes on capital (inheritances and. donations); (20) 10 percent of the tax on inheritance; and (21) 100 percent of taxes on lands and ground plots. The state again redistributes the income received in this second installment, Iv2 plus Ik2, returning it to the private sector as (Gv2 + Gk2). This time, the working Class gets only a percentage (v2/ipc) of (22) operational subsidies; (23) diverse paid current transfers (dpct); (24) paid capital transfers (pkt); and (25) health benefits, that is, "noneconomic" benefits (distinct from pensions and unemployment benefits), namely, pharmaceutical expendituresP As for Gk2, it is a public expenditure that benefits the bourgeoisie, whether directly or (indirectly) through firms: (26) the remaining percentage (1 - (v2/ipc» of subsidies; (27) the same of dpcr, (28) the same of pkr, (29) the same of health benefits; (30) 100 percent of public purchases of consumer goods and services; and (31) 100 percent of public investment. Finally, if we deductlv2 from v2 and add it to Gv2, we obtain v3: variable capital taken as the consumption necessary for reproduction of

FALL 1992

55

Table 1 Percentage of the following variables In the total national income (see text): 1970, 1977, 1982, and 1987

1970 1977 1982 1987

1970 1977 1982 1987

1970 1977 1982 1987

1970 1977 1982 1987

1970 1977 1982 1987

1970 1977 1982 1987

1

2

3

4

5

6

7

8.3 12.6 14.2 13.5

0.9 2.2 3.9 4.8

0.7 0.5 0.5 0.5

1.4 1.8 1.8 3.2

0.5 0.6 1.1 3.4

0.7 0.5 0.5 0.5

1.9 1.7 2.0 1.1

8

9

10

11

12

13

14

0.3 1.1 3.6 3.8

2.9 5.8 7.7 8.5

6.5 7.2 8.7 8.1

2.3 3.9 4.9 5.3

0.8 0.7 1.3 5.1

5.6 5.3 6.1 7.9

1.2 1.4 1.5 1.7

15

16

17

18

19

20

21

0.0. 0.0 0.9 0.1

4.5 3.4 4.6 7.2

1.0 0.9 1.1 1.6

0.0 0.0 0.0 0.1

0.3 0.3 0.2 0.3

0.0 0.0 0.1 0.2

0.2 0.2 0.2 0.2

22

23

24

25

26

27

28

0.6 1.1 1.9 1.2

0.9 1.1 1.2 1.4

0.7 1.0 1.7 1.6

2.6 2.0 2.3 1.9

0.5 0.7 1.5 1.1

0.7 0.7 0.9 1.3

0.6 0.6 1.3 1.4

29

30

31

Iv1

Ikl

11

GV1

1.5 0.8 0.8 0.6

1.8 2.0 3.6 4.8

3.5 3.5 4.2 5.1

9.8 15.3 18.5 18.8

4.4 4.6 5.4 8.3

14.2 19.9 23.9 27.0

0.6 14.1 19.9 20.5

Gkl

G1

1v2

1Kl.

~

Gv2

GKl.

3.1 4.6 6.2 10.4

12.8 18.7 26.1 30.9

6.8 6.7 7.6 9.8

6.0 4.8 6.3 9.6

4.8 5.2 7.2 6.1

8.6 8.3 12.3 14.3

12.8 11.5 13.9 19.4

the working class (in tenns of labor power sufficient and effective for capital). If we subtract I/o' from s2 and add G/O. to it, we obtain s3, which is the excess income consumed by the families of the bourgeoisie or accumulated as new capital. IS A comparison of v3 with vI will show if the net tax on the mcomes of the working class was positive or negative. In the first case, (Nlv > 0), this portion of value enables the state to finance the bourgeoisie, obtain a surplus, or both at the same

56 INI'ERNATIONAL JOURNAL OF POUTICAL ECONOMY Table 1

Continued

1970 1977 1982 1987

1970 1977 1982 1987

G2

Iv

Gv

Ik

Gk

NTv

NTk

13.4 13.5 19.4 20.5

16.6 22.0 26.1 28.6

14.5 19.3 27.1 26.6

10.4 9.4 11.7 17.8

11.7 12.9 18.4 24.7

2.1 2.7 -1.0 1.9

-1.3 -3.5 -6.7 -6.9

INETO

G

NTv1

NTk1

NTv2

NTJ