The idea of fiscal justice – that taxes should be paid in proportion to the taxpayer’s means -can produce bloody rebellions and even revolutions. But not in Russia.
What then-President Boris Yeltsin did in the 1990s was an old trick he might have cribbed from the histories of the old regimes of France if he had had the resourcefulness to read them. In his case, desperation took the place of literacy.
Until the French Revolution of 1789 halted the practice, French kings pursued buying the loyalty of those powerful enough to threaten their rule by handing out gifts of state assets. Productive agricultural land was the most important of these, but import concessions and commodity monopolies were also awarded. In addition, the kings sold titles of nobility. In return, they exempted the titleholders from paying most of the taxes of the realm. That’s what an aristocracy is made of – the right to exemption from tax, traded for a royal bribe, and the promise not to take up arms against the monarch. In this respect, all aristocrats are nothing if not petty bourgeois, and the foundation of their fortunes, while not necessarily a crime, is certainly a tax break.
Compared to the tsars, Yeltsin democratized tax exemption among Russians. He also favored a small elite, which has managed to concentrate most of the cash value of the exemptions into their own hands while selling off their debts. They are known as the “oligarchs.”
It is easy to understand that, the more insecure kings are, the more tax exemptions they dispense, at the same time as their expenditure requirements – for armies to protect themselves from rebellion – grow apace. The tax base shrinks, as fewer and fewer people are obliged to shoulder the costs of the unbalanced, crooked state. Yeltsin’s one original contribution to this long, sordid history was his invention of the 100 percent tax on low incomes: The practice, implemented by a succession of finance ministers, of withholding salary payments to state employees on the pretence of bureaucratic delays. By extension of the same practice to all those owed money by the state, the tax was adopted by private employers toward their employees.
Throughout the worst of this tax, there was only one revolt -that of the Supreme Soviet in 1993. By physically liquidating the parliament and killing more than a hundred of its defenders, Yeltsin taught a generation of potential tax rebels that it was safer to steal from the system than to fight it.
In the history of tax rebellions, poor people generally stay aloof. They die in swarms, but usually from disease, not from protest. Those who are prepared to fight for fiscal justice -attacking either the king or his noblemen – usually come from the small propertied classes; well-off farmers, tradesmen, artisans or small-business owners. They aren’t so poor that they don’t pay any taxes. Nor are they wealthy enough to buy their way into the exemptions of the aristocracy. So, they are the meat in the fiscal sandwich. When kings fear for their lives, these are the people who pay for his peace of mind. But their potential for disloyalty is always on his mind. The development of European bureaucracy, with all its record-keeping, inspectors and sanctions, is the evolution of squeezing the meat in the sandwich to the limit.
The current conflict between President Vladimir Putin and the oligarchs is unique, because, for the first time in Russian history, it is the king who is trying to dismantle the tax exemptions. He is doing this without any show of support from the small-business groups who stand to benefit most. They are too afraid of Putin’s weakness and the oligarchs’ vindictiveness to take his side, at feast for now. Those who ought to be their natural representatives, the deputies of the Duma Tax Committee, are hirelings of the oligarchs. Yevgeny Primakov at the Chamber of Commerce and Arkady Volsky at the Union of Industrialists and Entrepreneurs ought to speak for them, but they don’t dare to raise their voices either.
What Yukos CEO Mikhail Khodorkovsky is trying to do by selling a 40 percent stake of his oil company to ExxonMobil is nothing less than cashing out the capital gains on all the Yeltsin dispensations from which he benefited before next March. The timing is short and the method desperate, because Khodorkovsky and his fellow oligarchs are certain that Putin will introduce the necessary taxes to redistribute the wealth in the realm once he is reelected. “Stealing” is the word that, in the worldwide history of tax rebellion, all rebels use more often than any other to attack this practice. Khodorkovsky is no more than a thief trying to bank his loot in the United States. He may count himself less fortunate than Mikhail Fridman and Victor Vekselberg, whose sale of Tyumen Oil Co. to British Petroleum early in the year caught Putin unawares, uncertain of what to do ahead of the oil-price crisis the Iraq war could have triggered. Roman Abramovich has been just as fortunate in getting his cash out without paying tax, although the assets have remained in Russian hands. Thieves they are, in Putin’s view and in the opinion of most Russian voters.
This too makes for a unique alliance in the history of tax rebellions – the king in league with the passive poor. It is just as well that Putin has effective command of the Army and the security services, because his enemies are currently so numerous, his allies so impotent and the stakes so big that he might otherwise become a target for violence. Yeltsin destroyed the inhibition to use violent methods in 1993. The methods the oligarchs have used also lack this compunction.
Some of the oligarchs don’t have the stomach for confrontation with the Kremlin, but believe that Putin will be satisfied with a pantomime of concessions. Their paid propagandists at Vedomosti and the Moscow Times charge that all Putin is holding out for is a slice of the tax-exempt proceeds for himself. Vladimir Potanin, who controls both newspapers, has publicly proposed a program of raising employee salaries – although, at the same time, he is trying to make sure that the employees of his Norilsk Nickel mining company and the voters of the city of Norilsk will not elect as mayor the union leader who has been agitating for just such an increase since January. Vekselberg recently gave in to the first major strike of a group of employees at his Siberian Ural Aluminum-while simultaneously trying to prevent a single newspaper from reporting the wage gains the strikers have made, in case their example becomes infectious.
That’s another of the risks the oligarchs are running, as the conflict with Yukos drags on toward Election Day on Dec. 7. The chance is growing that Russia’s poor may cotton on to what Putin is trying to do and find their own spontaneous ways of taking the offensive against the oligarchs. A protest vote of this magnitude won’t show up in the preliminary polls. But, if it happens, it will signal that Russia’s young aristocracy is on its last legs.