This part 2 of my notes on international municipal socialist finance. Part 1 was last week, this week is the last section on taxes.

Taxes

One can’t avoid taxes, no more than one can avoid death. Yet in the case of municipal socialists abroad, taxation breathed a kind of life into their struggles against capitalism, in Austria, England and Germany, while sapping it in Australia. We’ve all heard about Red Vienna. But do we know how it was financed? There was a radical restructuring of the power to tax property at the regional level, taking away authority from the bourgeoisie beyond the Viennese municipality, thus providing the revenues for Vienna socialists’ red dreams for their city. 

After gaining power to vote locally in the wake of World War 1 there was a “dramatic municipal election of May 4, 1919,” in Vienna, “when the newly enfranchised citizens of Vienna elected a strong majority of Social Democrats (100 out of 165 seats) to the municipal council. 

One of the leaders of this slate, “in his first address to the council and the citizens as Bürgermeister” made clear that the next step must be local taxation authority. There were spoils in Vienna after the war and the municipality needed to capture those resources with its own taxes:

It will for that reason be emphatically taken up, that those residents in this city, each and every one, for whom the war served as a source of enrichment, must take on the burden of their tax responsibilities. In the first instance we must come to an agreement with the state, in order to put an end to the circumstances in which cities are not allowed to utilize their most important powers of taxation.

There was a need for housing given the influx of workers postwar. The newly elected social democrats had socialist visions for education and public health as well. But there was no way to fund their radical plans: “the opportunity to construct large numbers of public housing units to meet the acute housing shortage would have to await changes in the constitution enabling greater self-government of Vienna and enhanced capacity to generate new tax revenues.”

This change did happen, but it required a constitutional amendments to make Vienna its own province and thus tax itself. Red Vienna could only bloom in full after the municipal socialists had the power to tax, which they did through “the massive restructuring of local (now provincial) taxes,” that created “fiscal stability” as they implemented their groundbreaking social housing policies. 

In Brandenburg Germany, politician Hugo Lindemann set a good example. He waded into the “morass of municipal finance,” subjecting to “critique the various tax proposals put forward in socialist municipal programs for a variety of cities. In principle, he argued for simplification and clarity and for progressive income, property, and estate taxes as well as taxes on the unearned increment of property values. He also asserted the need for sharply differentiating socialist tax principles from those of bourgeois social reformers.” 

The differentiation we see is typically between taxes on wealth and income above certain thresholds, as well as taxes on passive income from earnings and holdings, that is, taxes on the ruling class to pay for working class programs. Yet it’s important to point out what such taxes stand in contrast to: taxes on consumption that impact the working class’s pocketbooks. Socialists consistently favored ruling class taxes over excise taxes. Such differentiation helped solder socialists together across yawning divides in the formation of the United Kingdom’s Labour Party. 

As regime theorists in political science have found, government is always governance, where agendas get enacted by coalitions of electeds officially affiliated with groups outside the halls of state power, whether they be unions or round tables or nonprofits or donors. Politics happens through regimes, and the same is true for municipal finance, which played a unique role in helping disparate groups come together across cultural divides in the formation of the Labour Party in the UK. 

There was a bitter split between the hardnailed Northern trade unionists and their militant organizations based in the workers’ communities far from London and the wealthier socialist Londoners who spoke of dialectics from salons. While each faction had the same goal they shared very little in common, nearly breaking the potential connection between them, which erupted at a conference whose purpose was to federate the northern workers with social democrats influenced by German socialists. 

When a Northern worker called Ben Tillett, a leader of the dock workers, insulted what were called “continental socialists”, such as famed German social democrat Eduard Bernstein, sitting there on the conference stage, Tillett “veered off into a screed” in objection to a motion joining the social democrats to the northern workers. According to local Liverpool papers, “Alderman Tillett…described the Continental Socialist organisations as mere chatter and blabber without effective working powers,” saying that he was “tired of people painting Socialism on their foreheads who were no more Socialistic than Bismarck, and for that reason he did not want them to add another Socialistic party to the movement.” 

Socialists today probably find this debate familiar, which we know by the epithet ‘PMC’: are middle class intellectuals dwelling in cities actually engaged in class struggle, as opposed to the ‘workers themselves’, like the construction worker from Queens who doesn’t want to use pronouns? For the London socialists, Tillet’s “remarks [highlighted] the gulf that lay between London socialists and the trade unionists, particularly in the North, seeking to craft an inclusive independent politics outside the orbit of liberalism. ”

A constant question is how to hold this unstable coalition of within-class fractions whose material conditions and cultural practices vary quite wildly, while their overall goals are united. In the UK, they both supported, more or less, how to restore capital and land to the working class. But how to work towards that horizon together? Finance was one of the early glues that held this coalition together were certain finance policies (taxes) that both factions supported. What brought them together? A program that “stressed economic grievances”: 

The draft program stressed economic grievances—the need to abolish overtime, piecework, and child labor; institute the eight-hour day; expand social welfare; and provide free nonsectarian education and unemployed relief. To finance these programs, it proposed a graduated income tax and a tax on unearned increments of land values.

Ultimately the Labour Party was born from these connections, as the London socialists and trade unionists of the north could agree on a graduated income tax, as well as a tax on unearned incremental increases in land value. Those taxes would finance a program of working class policies and, thereby, created the conditions for a cross-fractional alliance. 

While municipal taxes brought socialists together in England, in Offenbach, Germany various tax proposals also galvanized socialists like Carl Ulrich against liberals, with a back and forth of loss and victory that would ultimately vindicate their municipal emphasis on ruling class taxation. Their original program included “fundamental adjustment of fiscal matters through the elimination of all consumption and poll taxes,” called for greater municipal autonomy from the state, replacement of consumption taxes with higher graduated income taxes.” 

In Offenbach, the local council was divided between liberals and socialists when the latter made their move, a “complex maneuver to raise direct income taxes and reduce taxes on foodstuffs including meat, flour, and coal.” But the ruling class clapped back. “After a running battle, they acquiesced in short-term consumption tax increases but longer-term increases in progressive income taxes.”

Offenbach socialists lost a round to liberals, but they bided their time. With a growing deficit in 1901 they almost lost their majority on council. But the liberal victory was pyrrhic: “the new bourgeois majority failed to adequately address the deficit problems, while raising taxes on consumption, the Liberals in 1904 now found themselves in an adverse electoral position.” The socialists took advantage of the bad politics of excision and counter-maneuvered against the liberals, whom they cast as irresponsible and taxing the working class. How did they gain the upper hand? Finance policy. They won taxes on the rich and reversed the liberal protection of the ruling class, nothing less than a 

“fundamental reorientation of local taxation inevitably came into play with capital and land, as well as income taxes that displaced the regressive consumption taxes the bourgeois-governed city had depended on. Offenbach moved from being one of the least-taxed Hessian cities in 1896 to the city with the state’s highest tax rates by 1907.”

As galvanizing as these tax initiatives were in England, Germany, and Austria, Australian socialists found themselves deflated by “wrangling over the ‘financial question’.” Taxes and what to do about them can enervate, sucking energy from organizing and bringing the high-flying energy of victory and struggle to the dullest doldrums of policymaking. One leader, John Miller, noted that the “early ardor of the party had been wasted,” specifically “that the fiscal question has cropped up and shattered solidarity, and that a feeling of ineffectiveness is beginning to have its influence.” But, by way of conclusion, the Australian municipal socialists had important lessons for us. Early Aussie Labourites reflected that many in their camp “had missed a crucial stage in their political evolution; they could think individually and nationally but had not yet learned to think municipally. One wrote that: “The municipality is around them, is part of their daily lives, ministers to their comfort and their health, and is (to coin a word) watchable by them individually.”

There was thus a sense in Australia that socialists were missing a step in their vision: they could think individually and nationally, but not municipally, which was an opportunity to get a training in finance and political economy where issues were “watchable.” Australian municipal socialists understood that there was a necessary step between the individual socialist analysis and its national implications: the municipality. For them it was a way of learning. What did they learn? Specifically about the relations of ownership, their potential collectivization, at the level of financial practice.  The municipality, they concluded, was “training ground in finance and public economy for their future political candidates.” As the new wave of municipal socialism flows in the United States, it’d behoove the movement to keep this in mind.