Over the last few months the term ‘Fiscal Cliff’ has become increasingly popular in political as well as financial discourse. The term originated in the US, to refer to a series of impending tax increases and government spending cuts which are intended to cut the huge government deficits. As matters currently stand, the projected US yearly deficits over the last ten years has increased from $128 billion to $1.2 trillion. The debt ceiling (the legal limit of total US government debt allowed) is set at approx $16.4 trillion and already has reached $16 trillion. Both sets of figures are now considered by all US political parties as unsustainable and are therefore in their eyes in need of correction.

However, such huge sovereign debt problems are not restricted to the US economy, but apply, to a lesser extent, to the countries of Europe and elsewhere. The ‘cliff’ analogy refers to the expectation that governmental budget austerity and cuts will lead to a huge drop in economic activity possibly in the form of ‘double-dip’ recessions. The ‘correction’ of such deforming deficits raises the question of who in the US and Europe is going to be buried under the debris when the ‘fiscal cliff’ finally collapses. To continue with the ‘cliff’ analogy for the moment, those in the economic and political elite are currently proposing policies which will ensure that the 1% will be the first to be evacuated from under its impending collapse.

On the other hand, the weakest elements of the 99%, those with fewest resources, will be left at the base of the cliff, whilst those better off among the 99% will have to scramble to safety as best they can. We will definitely not be all in this collapse together. The solutions which all current mainstream political parties propose are variations on the same basic theme. First: Cut spending on welfare and public sector employment in order to reduce government expenditure, whilst increasing costs and indirect taxation to improve government income. Second: Hope for sufficient economic recovery, to soak up the exceptional levels of unemployment caused by these measures. The variations are only about how quick these policies should be implemented and how much charity should be extended to the shattered victims of austerity and the disintegration.

It is popular on the liberal and soft ‘left’ to argue that there is an alternative set of policies to the currently evolving crisis. These amount to policies which will save capitalism from its own worst symptoms and soften the blows for the able-bodied poor and those less fortunate. Some of these alternative suggestions have been promoted along the lines of; ‘government debt is not all bad; that government debt has been higher in the past; that government spending boosts private capitalist economic activity; that the current problem is caused by a shortage on money supply; higher taxes on the rich should be implemented; a financial transactions tax should be initiated; etc. These sorts of proposed solutions emanate from the ‘democratic’ or ‘liberal’ political spectrum in the USA and from the ’socialist’ democratic political and trade union spectrum in Europe and the UK.

The pro-capitalist, anti-worker and anti-poor logic of these political trends is clear! For these advocates, its OK that working people have to pay high taxes to fund insane levels of government (war-enhanced) debt and continued borrowing; its OK for the rich to exploit the poor, providing they don’t dodge taxes and pay an increased amount of it; that it is OK for financial speculators to rip off everybody, providing they are taxed a bit more when they do so; that it is a good idea for general tax payments to be used for enabling private enterprise and personal capital accumulation. In other words, these policies are what every enlightened bourgeois individual should want and advocate. In fact the system should be criticised and exposed for what it is doing and not doing, not humbly reminded of what it should – in all honesty – be already doing.

Significantly, these types of reformist stage management policies are only focussed on the symptoms emanating from the capitalist system. The advocates of reform measures, do not seem to understand the underlying systemic nature of the developing capitalist crisis. This current crisis is not something which can be reformed away by tax increases and regulation, because it is made up of at least five, fundamental and irreconcilable contradictions. [see the ’Five-fold crisis of Capitalism’]

These fundamental contradictions can only be resolved by violently suppressing one side of the contradiction or the other. The two sides are, on the one hand, the capitalist system and its supporters, and on the other, the combined sections of the working and oppressed classes. What is currently being seriously prepared by the elite is not financial regulation of themselves and greater fiscal responsibility, but class war – initiated by the capitalists and their political supporters.

Of the five contradictory elements, one in particular has been insufficiently analysed with regard to an important development of 20th century capitalism and the consequent rise of a new employment sector for the working classes. That development, the public sector, (teachers, social workers, health workers, local government workers, fire-fighters, police, military, civil servants) is obvious to all, but the economic consequences of this sector, in the cycle of capital circulation and accumulation, has largely been ignored and little understood.

With the neglect of Marx among activists, few people on the left have bothered to consider his 19th century analysis of productive and unproductive labour. This neglect is perhaps not surprising, but in the current circumstances, it leaves an important dimension out of consideration by our anti-capitalist understanding. [For a fuller description of this distinction see Productive and Unproductive labour.]

Explained briefly, productive labour, from the standpoint of the capitalist mode of production, is the employment of workers to reproduce and augment their capital. Unproductive labour, however useful and/or necessary, which does not reproduce invested capital, together with a return of a surplus amount (profit) is not productive. Indeed, under the capitalist system, unproductive workers are a drain upon, (a deduction from), the annual surplus extracted from workers employed productively in their various production processes.

Since a part of these annual surpluses, must be surrendered (as taxes) to the governments of capitalist countries, to exercise their functions, there is a struggle by the capitalist classes, over how much, or rather how little they are compelled to surrender. It is these taxes (corporate and individual), together with government borrowing, which currently provide the wages of the public sector.

Individual capitalists and their companies, avoid tax in numerous ways, and their political representatives and lobbyists campaign to reduce the official levels of taxation. The huge deficits run by the US government and noted above, are in a large part the result of the successful lobbying to lower taxes for the rich which commenced under the George W Bush administration in 2001 and again in 2003.

Tax cuts in the US were extended in 2005 and 2007 and again in 2008 and it is estimated that these tax cuts removed $1.1 trillion dollars from government revenue, which had to be replaced by borrowing. This pattern, to a lesser degree has been replicated everywhere in the capitalist world. It is a part of the neo-liberal capitalist agenda to cut taxes for business and the rich and slough off parts of the public sector which can be re-structured into a capitalistic form.

It is, however, only on the surface, that the problem seems to be one of taxation. It may seem that what is needed is to increase taxes, and stop tax avoidance, to correct a fiscal imbalance within capitalism. But fiscal deficit is only a surface symptom which, like an eruption of ash and pumice from a volcano, has a much deeper underlying pressure and substance beneath it. That pressure and substance is the changed ratio under modern capitalist production methods between productive labour and unproductive labour.

This ratio together with the desire of capitalists and pro-capitalists to reduce taxation is causing an attack upon the numbers (along with the salaries and benefits) of those employed in the public sector. This sector along with the poor, the old and the infirm, are those, under this system, who are further threatened by the impending collapse of the fiscal cliff. So far this is only producing rumblings of discontent, but sooner or later this sector is likely to explode. [see’workers and others in the 21st century‘at www. gmanticapitalists.com]

Irrespective of any increased taxes and rigour with regard to collecting them, the underlying problem still remains. The technical levels of production has increased exponentially and its location has spread geographically. The consequent changed ratio between workers who are essential for the reproduction and growth of capital and those who are essential to working people, but a drain on capital, is a fundamental change in the social composition of work. These are problems, not of taxation, but of fundamental economic contradiction and crisis.

The capitalist drive for profits is not only mass-producing commodities, but mass-producing unemployment in the private sector and now the public sector. It is also mass-producing pollution and ecological damage alongside mass-producing obscene amounts of wealth for a relatively small elite, only a little of which trickles down. The current crisis should be a catalyst for widespread debate upon the degenerate and militarised nature of 20th and 21st century global capitalism and the need for an alternative system. It should not be diverted or restricted to discussions on taxation alternatives.

Roy Ratcliffe (August 2012)

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