Forwarded from Anthony (reply to query on taxes)

Louis Proyect lnp3 at
Tue Nov 18 07:25:02 MST 2003

In answer to Jurrian’s question,

“.... Is it the case that the working class just provides the state with 
a guaranteed income, and that the US Government can just spend the money 
as it sees fit, or is there a clear relationship between tax collection 
and expenditure of tax revenue, in the way described above, so that no 
tax money can be spent other than for the purpose for which it was paid 
in ?

No, the governments -federal, state, and local - do have restrictions on 
how they spend particular tax revenues.

No, there is no clear relationship between tax collection and expenditure.

Yes, they can - through various subterfuges - spend tax money for 
purposes other than those it is earmarked for.

However, the most important tax revenue in the United States comes from 
the Federal income tax - and it goes into the general fund, and is
spent according to the annual budget passed by the Congress of the USA.

Historically tax revenues in the United States were mostly in the hands 
of state and local governments until the passage of the 16th Amendment 
to the Constitution in 1913 established Federal Income Tax. The Federal 
budget was limited mostly to income from customs and fees before that 

Property taxes and sales taxes were always,  and have been until the 
present, in the hands of state, county and city governments. 
Restrictions on the uses of these taxes are mostly determined by the 
respective level of government (state, county, municipal) - so there are
all kinds of different restrictions in different localities. In 
California for example, local sales taxes are earmarked for certain 
projects - like subsidizing public transportation in the case of a small 
portion of the sales tax in the San Francisco Bay Area.

Property taxes have been traditionally set aside for public schools and 
public universities, this tradition goes back to the massive occupation 
of public lands by squatters, and near squatters from the 1600’s until 
the end of the 19th century. Its roots are in the Northwest Ordinance 
(1787 or thereabouts), and the Land Grant Act (1862). However, this 
tradition has long been breached by many exceptions. Property taxes are 
the most important revenue for most state governments and are spent on 
just about anything and everything from education, social welfare, to 
the police and prison construction (a big budget item in the last decade.)

Social Security taxes are complicated by a mixture of state and federal 
taxes and benefits. But in the USA, the social security system 
established during the 1930’s is a pension system, with taxes levied on 
employers and employees,and deposited into an independent agency, the 
Social Security Administration.

This regime lasted until the ended of the 1960’s. It began to unravel 
with the ‘tax payers’ revolt’ in California, and the now famous 
‘Proposition 13’ - a referendum which put a cap on property taxes. The 
victory of Proposition 13, and the associated victory of Ronald Reagan 
in the Gubernatorial race there, marked the beginning of a three decade 
rollback of historic gains in public education, social welfare, social 
security, unions, science, etc.

How that rollback has played out is very complex - because it has never 
been completely successful in any of its aims. Now earmarked tax
revenues are often ‘lent’ to finance other programs. This is especially 
the case with social security funds.

In general, taxes in the US are usually not earmarked for particular 
expenditures, and when they are, ways are found to spend them elsewhere.

All the best, Anthony


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