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Fourth International, November 1942


Editorial Comment

The New Taxes


From Fourth International, vol.3 No.11, november 1942, pp.223-226.
Transcribed, Edited & Formatted by Ted Crawford & David Walters in 2008 for the ETOL.


The New Taxation, a Triumph for Big Business – It Places the Burden of the War on the Masses – Not One Voice in Congress Defended the Workers – The Fight for a Labor Party

Roosevelt’s ultimatum to Congress quickly produced results during October. Less than 24 hours after the October 1st deadline set in the presidential ultimatum, Roosevelt had on his desk the legislation he had demanded, empowering him to fix prices and freeze wages, which he did in his executive order of October 4th. The order brought farm prices under a ceiling agreed to in a compromise between the Administration and the farm bloc. But with the workers there was no compromise: wages were effectively frozen to the level of September 15, 1942. This was quickly followed by the next step in the assault on the workers’ living standards: the tax bill adopted almost unanimously by Congress on October 20th and signed by Roosevelt the next day.

Wage-freezing and taxation of the workers are two halves of one scheme. Wage-freezing holds the workers fast in the vise; then the government proceeds to tear huge chunks out of the workers’ living standards through new taxes. This is the strategy of the capitalist class and its government. This is how they shift the burden of the war on to the backs of the working class.

A Triumph for Big Business

Big Business openly exulted at the passage of the new tax bill. When it became clear that the Senate Finance Committee was following a policy of complete subservience to the large corporations, and that this policy would prevail in Congress, the joy of the capitalist class was manifested in that most sensitive gauge of the mood of American capitalism: the stock market. On Thursday, October 8th, for the first time in many months, the New York Stock Exchange had a million-share day, and another one the next day; and on the next – Saturday, October 10th – the Dow-Jones industrials index reached 114.93 – the highest point since Pearl Harbor. The advance of the index for the week was 3.59 points.

Barron’s, the outstanding financial weekly, explained the advance in its October 12 issue:

“For the strength of stock prices and the sharp revival of trading several explanations can be cited. The most convincing and the most tangible undoubtedly was the overwhelming rejection of the LaFollette amendment to the Senate Finance Committee tax bill calling for an increase in the straight corporate tax to 50 per cent from 40 per cent. An even stronger symptom of Senatorial sentiment was the subsequent adoption of an amendment eliminating the scheduled taxation of future state and municipal bond issues. ... The whole-hearted Senate espousal of the conservative point of view augurs strongly for the ultimate enactment by Congress of a sound taxation program which will safeguard the integrity and earning power of industry.”

As Congress completed the bill, the Magazine of Wall Street (October 17) gleefully confessed that it was better than Big Business had hoped for:

“As it now stands it is a more sensible and realistic bill than most observers thought would be possible to get in an election year. For this we can chiefly thank the Senate Finance Committee.”

And when Roosevelt signed the bill, making it law, Barron’s (October 26) happily noted:

“Tax treatment of corporations is more liberal than was deemed possible when the Senate Finance Committee began its hearings ... Business men have every reason for relief over the character of the new tax bill, and would seem to be conjuring up trouble unnecessarily over possible1943 confiscatory levies so long as Senator George [Democratic chairman of the Finance Committee] is in the saddle.”

The ultra-reactionary United States News of October 30 writes:

“The 1942 Revenue Act ... represents a complete defeat for New Deal tax ideas in general. It’s not so hard on income of corporations. Its underlying policies are rather conservative, not at all radical ...

“As for corporation profits after taxes: The 1942 net is to be only about 15 per cent below 1941, over all. It’s to be about 12 per cent above 1940. That’s not counting the postwar refund.

“With refund, net profits of all corporations will be about 5 per cent under 1941; will be nearly 25 per cent above 1940. That is a very favorable picture.”

These figures are particularly significant since 1941 was an exceptional boom year for net profits.

Thus their own words testify that the capitalists consider the passage of the tax bill a victory in their campaign to place the burden of the war on the backs of the workers. How great a victory it was for the capitalist class becomes clear when we analyze the new taxation.

The normal-plus-surtax rate of taxes on big corporations was about 31 per cent for 1941 – a peace year (normal estimated as the average for 1936-39). The new rate is 40 per cent – only slightly more than 9 per cent higher. To put a better face on what was being imposed on the workers, the Treasury began by asking a 55 per cent “normal” rate for Big Business; but this was whittled down to 45 per cent by the House, and .5 per cent lower by the Senate. The whittling down was done, of course, by the Administration’s own party leaders in the House and Senate.

Taxes on excess profits (usual estimated as those above the 1936-39average) were formally set at 90 per cent but, with a 10 per cent refund after the war, actually at 80 per cent. For many of the big corporations the refund is the least of the gifts included in the new bill. It provides that no more than 80 per cent of any company’s net income shall be taken by taxes. “For companies with low pre-war earnings and extra-fat current profits this means a real saving over the top 1942 rates,” reports Time magazine. That is, for companies with low pre-war earnings in terms of fixed capital – above all Big and Little Steel – this means more net profits than in 1941. Moreover, companies which had one “very bad” year during 1936-39, bringing down the average after which excess profits are computed, are given special forms of relief. Whole categories of enterprises are exempted from paying any excess profit taxes: manganese, antimony, tin and other metal mining. Other exemptions, based on increased output over 1936-39, are granted to lumber mills, coal and iron mines. Provisions for computing tax rates over longer periods (including previous poor years) are so generous that, Time magazine reports, “some corporations will be entitled to rebates” at the end of this year!

Two other items which particularly pleased Big Business were the rejection by Congress of a proposal to tax state and municipal securities, and the adoption of a provision that war contracts, when re-negotiated once, shall not be reopened again.

Thus Congress dealt gently indeed with Big Business. This part of the tax bill is aptly enough characterized by Time as “helping convince big and little businessmen that the US has not scuttled the profit motive.”

Finally, remember that by previous legislation corporations are entitled to charge off against taxes in a 60-month period the cost of new plants built for the “emergency.” For example a company which built a million dollar plant may this year subtract $200,000 from the amount it owes for taxes. As the Truman Committee complained, the army and navy are extremely liberal in certifying which plants come in this category. The result is that certain corporations will pay little taxes on huge war profits this year.

The Tax Burden of the Workers

Contrast this with the blows dealt by Congress to the living standards of the workers and dirt farmers.

The level of income at which income tax payments begin has been lowered from $750 for single persons to $600, and from $1,500 for married persons to $1,200. This means that about 10,500,000 wage workers hitherto exempt must now pay income taxes, bringing the total of wage and salary workers now subject to income taxes to a total of about 26,500,000. Exemptions for dependents have also been lowered from $400 to $350. The more than ten million new income tax payers are, of course, among those whose below-subsistence wages were hitherto considered much too low to justify taxing them

At the same time, the amount of income taxes has been increased. As an example, a married man with a dependent wife, if he earns between $1,500 and $2,000, will pay at least seven times as much as he paid in 1941. He will be paying, in income and “Victory” taxes, nearly five weeks’ wages!

In addition to the millions of the lowest-paid workers who have been added to the income tax rolls, all workers who earn more than $12 a week must pay, apart from income taxes, an additional 5 per cent “victory’” tax on every dollar over the $12. This tax will be deducted from the pay envelope by the employer and sent to the government. Refunds between 25 per cent and 40 per cent are provided for, payable either after the war or in a year if the taxpayer establishes that he has made certain expenditures for government bonds, payment of insurance premiums and debts. Meanwhile, however, the “Victory” tax is a wage cut. Even with the refund, it extracts between three to more than four per cent of the wages over $12 of every worker. It is estimated that nearly 50 million workers will pay this tax, which is levied on all regardless of the number of dependents.

Other chunks of the workers’ living standards are taken by new increases in excise (consumption) taxes on cigarettes and two-for-a-nickel cigars, alcoholic beverages, etc.

The weight of these new federal taxes is only realized if one adds them to the federal, state and local tax burden already being carried by the workers previously. The capitalist propaganda for the latest tax bill pretended that the masses were hitherto paying little or nothing in taxes. The demonstrable truth is, however, that the workers were already carrying the main weight of taxation.

Sixty per cent of all taxation was being paid by those earning under $3,000 per year, a government sponsored study showed in 1938-39. [1] Already then, the workers were paying nearly 20 per cent of their incomes in open and hidden taxes. This is graphically illustrated by the following table [2]:

Per Year

Per Cent of
All Income

Per Cent of Income Paid Out in Taxes


State & Local


Under $











 1,000-  1,500





 1,500-  2,000





 2,000-  3,000





 3,000-  5,000


























These figures, let us emphasize, are for 1938-39. Since then, the tax burden on the lower income categories increased tremendously with the growth of state and local sales taxes, increases in city and county taxes on workers’ possessions, the extension and rise of excise taxes. As for federal income taxes, the level of income at which taxes were imposed sank lower and lower even before the latest tax bill; between 1939 and 1941 the exemption for married couples was lowered from $2,500 to $1,500 and for single persons from $1,000 to $750. Thus, even before the latest tax bill, the percentage of income which workers and dirt farmers were paying in taxes was already much larger than the very large figures for 1938-1939. It was on top of all this preceding taxation that the latest burdens have been placed on the masses.

Nor is this the end of the process. On the contrary, having tasted blood, the capitalists are demanding more. Having established the precedent of “broadening” the tax base by adding more than ten million lower-paid workers to the income-tax paying population and subjecting practically all the workers to the “Victory” tax, Big Business is already proposing that even heavier taxes should be imposed on the toilers to the advantage of the capitalist class. Secretary of the Treasury Morgenthau, before final passage of the latest tax bill (which will yield between seven and nine billions), had already announced that he would present to Congress a new six billion dollar tax bill. Immediately the Magazine of Wall Street (October 17) declared it is now obvious that “whether through a sales tax or otherwise, the major part of any further increase in the total tax revenue will have to be had from the masses of lower-income people.” Like the tax bill passed by Congress on October 20th, the next bill – and those which will come after it – will be designed to place the main burden on the masses on the pretext of preventing inflation by curtailing mass purchasing power. There are numerous signs that the capitalist class and its government are preparing for further increases in taxing the workers under this pretext. Even before the last bill was passed, Senator George declared, on October 10: “This bill does not go very far in checking inflation.” On October 21, the New York Times quoted Representative Allen T. Treadway, Republican member of the House Ways and Means Committee, counterpart of the Senate Finance Committee, as saying about the next tax bill: “The only new source of income left was the sales tax. He hoped that the new tax bill would be so passed that it would bear heavily on increased war income (of workers) rather than on normal income.” And Business Week (October 24) declared: “Almost everyone agrees that the (October 20th) tax bill is inadequate as an anti-inflation measure.” It is all too clear that, flushed with success, the capitalists are preparing a new tax offensive against the masses.

Federal taxation, including the bill adopted October 20th, will reach nearly 25 billion dollars for 1942. This is, however, less than a third of the estimated war expenditures for this year. The remaining fifty billions and more must be borrowed and become governmental debt, except for that part of it which will be raised by still further taxation. How much more taxation will there be of the masses? As much as the ruling class can get away with imposing on the workers and dirt farmers.

In return for this taxation will the masses at least be spared the evils of inflation? This is the argument of the Administration that the trinity of price-fixing, wage-freezing and curtailment of purchasing power through taxation will halt the admittedly existent inflationary tendency. We refuted this argument in some detail last month. Here we need only note the central fact that the basic cause of the inflationary process today is the diversion of capital and labor to war production and the consequent ever smaller supply of consumer goods. Hence the pressure of purchasing power on prices continues, only slightly diminished by the new taxes. The most that can be claimed is that the Administration’s program slows up the process of inflation in this way. Simultaneously, however, the Administration is accelerating the inflationary process by its ever greater war expenditures. It is not a case of either rising prices or heavier taxes. The workers are being subjected to both.

The Permanent Trend in Taxation

Let no worker imagine that this attack upon his living standards will be limited to the duration of the war. All indications point to a post-war public debt of at least $200 billions, even if the United States is victorious in a relatively short time. As today, so then, the capitalist class will seek to place the tax burden on the workers. Indeed, many of the war taxes will never be repealed during the lifetime of American capitalism. To the already indicated public debt must be added the costs of the projected attempt to “police” the postwar world.

The continuing increase in the tax burden on the masses is an organic aspect of the degeneration of capitalism in the epoch of imperialism. Following the first American imperialist war – against Spain – an outstanding bourgeois economist noted:

“It appears that our Federal government is, on its financial side, mainly a huge machine for collecting taxes in order to defray the direct and indirect cost of war.” (C.J. Bullock, The Growth of Federal Expenditure, Political Science Quarterly, 1903.)

At the time Bullock wrote these words, the Federal debt was less than a billion dollars; today it is already $91 billions. During the rise of American capitalism, the total taxes were small and easily met by the expanding economy. Now, on the contrary, as a result of depression and war, taxes are huge while the economy, as shown by the ten-year economic depression, is stagnant and can be invigorated temporarily only by the spur of war needs.

This basic tendency is expressed by the following figures. In 1913, 2 per cent of the national income was absorbed by federal taxes. Ten years later 4.4 per cent was taken by the Federal government in taxes. In 1929 it was 4.8 per cent; 4.5 per cent in 1932, and rose to 9.3 per cent in 1938. At present Federal taxation will take about 20 per cent of the national income. In these figures are expressed the symptoms of an outlived social system.

This basic tendency dictates the strategy in this field of the two main classes of modern society. For the capitalist class, to free themselves as much as possible from the burden of foisting it on the masses. For the working class, to defend its living standards by an irreconcilable struggle against the capitalists and their subservient government.

The struggle against taxation, in previous generations a relatively unimportant problem for the working class in the United States, is now on the order of the day. Here we have one more expression of the “Europeanization” of America, for in the period between the two World Wars this was one of the most burning issues for the European working class.

The Fight for a Labor Party

Nobody, literally nobody, defended the interests of the workers and the dirt farmers in Congress as the tax bill was being put over. It was Roosevelt’s own party that molded the final bill. There was, indeed, little difference between it and the original proposals of the Treasury. Morgenthau had proposed somewhat higher taxes on corporations, but the essential principles of his proposals were embodied in Poll-Tax Senator George’s completed work: preservation of corporate profits as an “incentive for efficient production,” and curtailment of the purchasing power of the masses. The essential identity of aims between Roosevelt and George is indicated by the fact that Roosevelt made no effort to exert pressure upon Congress on those details where he did differ – and Roosevelt has shown that he does not hesitate to press Congress on questions that he deems important! As for such other “friends of labor” as Senator LaFollette, he said some hard words about the bill when it was first presented, offered an ineffectual amendment – then did not even have the courage to vote against the bill. The simple truth is that, neither in the House nor the Senate, did labor have any friends.

That there was not a single labor representative in Congress to speak up in defense of the workers’ standard of living this is the measure of the bankruptcy of the official leadership of the trade union movement. Why isn’t there a group of Senators and Representatives elected on a labor ticket? Nobody can pretend that the trade unions could not elect them. The eleven million members of the trade union movement and their families, plus the agricultural workers and others who are not unionized but who would undoubtedly vote with the workers’ organizations, dirt farmers and the white collar and professional elements who are pro-labor, together constitute the overwhelming majority of the nation. Given any serious attempt to mobilize them under the banner of a Labor Party based on the trade unions, the very least they would succeed in achieving immediately would be the election of a group of Senators and Congressmen from labor’s ranks and pledged to defend labor’s interests. Instead we have the shameful spectacle of the great workers’ organizations limited to a perfunctory appearance at hearings of the Senate and House committees and then, with a free hand, the political agents of the capitalist class trot their anti-labor bills through Congress without a single voice raised in protest.

Throughout the history of the American labor movement, the workers have tended to embark on independent political action whenever economic action cm a trade union level has proved inefficacious. Today, more than ever before, they are blocked off from economic action. The unions are hog-tied by the agreement of the official leadership not to strike. Moreover, all the questions confronting the workers today are political: government-regulated wages and prices, government boards everywhere, taxation directed against the masses, and – the workers begin to see – all these questions are in turn connected with the character and conduct of the war. Now, more than ever, the workers need independent political action. Yet not a single top leader in the trade unions breathes a word about it. The AFL and CIO leaders are as terrified of it as are the bosses.

They have good reason to fear it. They may very well be swept away in the stormy rise of a Labor Party. A Labor Party which arises in the America of today must tend to come into collision on fundamentals with the capitalist class. This is the epoch of the death agony of capitalism. The war is an expression of this death agony. A Labor Party, like that of England, arising during a period when capitalism still seemed endowed with indefinite possibilities of expansion, could comfortably adapt itself to a capitalist outlook. But a Labor Party arising in America during the precipitous decline of world capitalism can have a very different development. The British Labor Party adapted itself on the basis of concessions which the capitalists could grant at the expense of the vast masses of colonial slaves, especially in India and China. But the whole colonial world is rising from its knees today and all the forces of American imperialism will not suffice to beat it down again. The Labor Party in America must from its first day confront a capitalist class which will fight to the death against any concessions. That means irreconcilable class struggle. That means to pose the question of POWER – who shall rule, the capitalist class or the working class? The AFL and CIO leaders however, men of yesterday, are utterly alien to the conception of a working class which fights to rule its own destiny.

Every day’s developments, nevertheless, drive the workers in the direction of a Labor Party. What is necessary now is to generalize for the workers their own experiences with the government. We must help them see the interconnection between the various blows dealt the workers by the political agents of the capitalist class, now capped (for the moment) by the new taxation. Once they see the strategy of the capitalists, the workers will understand that it is a question of class against class, of Labor Party against the capitalist parties. Life itself is teaching this; we need only to speed the process of education of the workers. When the demand for the Labor Party grows to mask proportions in the trade unions, it is probable that not a few of the AFL and CIO top leaders will try to go along. With or without them, however the workers will have their party.

– C.C.
– F.M.


1. Who Pays the Taxes, by Gerhard Colm and Helen Tarasov. Temporary National Economic Committee Monograph No.3. Washington: Government Printing Office, 1941.

2. op. cit.

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