In socialism—the transitional period between capitalism and communism, and the dictatorship of the proletariat—the working class becomes the owning class. The workers eventually completely own means of production, though that takes some time to achieve. The capitalist class’s means of production are taken, and the remaining former capitalists make up the subjugated and dominated class. But unlike in other class systems, the capitalists do not get exploited; they do not get robbed by workers. Rather, they are forced to become workers of some sort.
Within the socialist sector of the economy (which includes state enterprises and cooperatives, and excludes bourgeois enterprises), wages are not prices of labor-power, but they are financial incentives and rewards for work. More skilled, intense, necessary, etc. work gets paid higher wages, and workers in general would be paid according to the value of their output. They will not receive the entire product of their labor directly, but the remaining product (the surplus product) would be used to keep the enterprises running, expand production by hiring more people and creating more means of production, and pay for welfare programs.In Critique of the Gotha Programme, Marx describes how the goods and services of society must be distributed in socialism (the lower stage of communism). In Part I, it states:
From this must now be deducted: First, cover for replacement of the means of production used up. Second, additional portions for expansion of production. Third, reserve or insurance funds to provide against accidents, dislocations caused by natural calamities, etc.
These deductions from the “undiminished” proceeds of labor are an economic necessity, and their magnitude is to be determined according to available means and forces, and partly by computation of probabilities, but they are in no way calculable by equity.
There remains the other part of the total product, intended to serve as means of consumption. Before this is divided among the individuals, there has to be deducted again, from it: First, the general costs of administration not belonging to production. This part will, from the outset, be very considerably restricted in comparison with present-day society, and it diminishes in proportion as the new society develops. Second, that which is intended for the common satisfaction of needs, such as schools, health services, etc. From the outset, this part grows considerably in comparison with present-day society, and it grows in proportion as the new society develops. Third, funds for those unable to work, etc., in short, for what is included under so-called official poor relief today.
Only now do we come to the “distribution” which the program, under Lassallean influence, alone has in view in its narrow fashion – namely, to that part of the means of consumption which is divided among the individual producers of the co-operative society.
Part I of Critique of the Gotha Program
What Marx is saying here is that the goods and services of socialist society are distributed by work, but they must be used to pay for a variety of necessities of society. They cannot fully be given to individual workers; obviously parts of the product must be used to replace existing means of production, get more means of production, and pay to ensure economic security from disasters and bad conditions. Parts must also pay for administration, social needs, and welfare programs for those who cannot work. This is why socialist countries have made sure to retain surplus product of labor; while the surplus product did not have the same social character as surplus-value (which does not exist in socialism), it still existed, albeit with a different social character. Surplus-value is specifically surplus that capitalists take, and in socialism, the surplus product remains under workers’ control.
In Chapter 33 of the USSR’s textbook on Political Economy, it says:
Wages in socialist economy are by their very nature quite different from wages under capitalism. Since labor-power has ceased to be a commodity in socialist society, wages are no longer the price of labor-power. They express, not the relation between the exploiter and the exploited, but the relation between society as a whole, in the shape of the Socialist State, and the individual worker who is working for himself and for his society. …
The basic economic law of socialism necessitates the maximum satisfaction of the constantly growing material and cultural requirements of the whole of society. The emancipation of wages from the limitations of capitalism enables them to be extended “to that volume of consumption, which is permitted on the one hand, by the existing productivity of society. . . and on the other hand, required by the full development of his (the worker’s) individuality”. (Marx, Capital, Vol. III, Kerr edition, p. 1,021.) Real wages constantly rise in accord with the growth and perfecting of socialist production. The requirements of the basic economic law of socialism with regard to stimulating production and raising the well-being of the working people are given effect through the law of distribution according to work. In accordance with this law, each worker’s share in the social product is determined by the quantity and quality of his work.
Wages are one of the most important economic instruments through which each worker in socialist society is given a personal material interest in the results of his work: he who works more and better also receives more. Consequently, wages are a powerful factor in the growth of labor productivity, enabling the personal material interests of the worker to be correctly combined with State (national) interests. …
The money form of wages allows for flexible and differential assessment of the worker’s share in the social product, depending on the results of his labor.
Thus, wages in socialist economy are the monetary expression of the worker’s share in that portion of the social product which is paid out by the State to workers by hand or brain in accordance with the quantity and quality of each worker’s labor.
The money wages of each worker by hand or brain are his individual wages. The source of the individual wages of the workers engaged in socialist production is the product created for themselves, and distributed according to work. However, the standard of life of the workers by hand or brain in socialist society is not determined by individual money wages alone. In addition to individual wages, large funds are allotted by the State and social organizations for the social and cultural needs of the working people, out of the product created by labor for society.
In conformity with the requirements of the basic economic law of socialism and the law of distribution according to work, the Socialist State plans the wage fund and the wage level for different categories of workers for each period of development…
Chapter 33 of Political Economy
In socialist society, many types of wages are used, most of which are used in capitalist society. There are piece-rate systems and time-rate systems; the former pay workers by the number of goods they produce, and the latter pay workers by the amount of productive labor time (time where they work) they contribute. Piece-rate systems are generally used in less-skilled labor that directly produces or distributes goods and services while time-rate systems are usually there for technical, engineering, managerial, administrative, and other professional labor. In socialism, individual and group contributions are recognized and appreciated with material and monetary bonuses given to those who over-fulfill production quotas, produce more efficiently, or do anything else extraordinary in their work. This makes the socialist distribution of goods and services based on the work contributions of workers.
In socialism, the falling rate of profit does not exist anymore; the state already owns the means of production, and all it does is shift where those means of production go; even with cooperatives, the means of production are distributed from the state to the cooperatives for basically free (of course, taxes and surplus-value pay for this). The workers do not buy or sell their means of production, except perhaps in international trade; the enterprises provide these for each other whenever needed, reflecting a transition from capitalism to communism.
The wages that workers get does progressively increase, and more goods get subsidized, meaning that workers’ quality of life improves as socialism develops. In Rethinking Socialism by Pao-Yu Ching and Deng-Yuan Hsu, it mentions this:
State ownership and political intervention made it possible for managers of state enterprises to dissociate themselves from being the agents of capital, and thus it was a step taken in the direction of phasing out wage labor. Workers in state enterprises had permanent employment status, an eight-hour day, and an eight-grade wage scale. They received medical benefits; subsidized food, housing and child care. Workers were also entitled to paid maternity and sick leaves, pension and other benefits for retirement.
Rethinking Socialism
There are low or no taxes in a socialist society. In “No Personal Income Tax in China”, an article in the Peking Review, it says:
In socialist countries under the dictatorship of the proletariat, state power is in the hands of the working people. The revenue depends mainly on the growth of socialist production, taxes in these countries do not affect the income of the working people. Because they are used to develop socialist economy and culture, they promote the welfare for the working people and serve to consolidate the dictatorship of the proletariat. …
A distinctive feature of China’s tax system is that no personal income tax has ever been levied since liberation. Working people in both the cities and the countryside do not pay taxes on their wages or other income from labor. Most of the Chinese youth do not know that it is necessary to pay “income tax.” Naturally they are surprised to learn that workers in many countries of the world have to pay taxes after they receive their wages. …
The founding of New China has changed the nature of the state power; the nature of taxation has also fundamentally changed. In accordance with Chairman Mao’s instruction “Lighten the burdens” of the people, New China has first of all abolished the exorbitant taxes and miscellaneous levies instituted by the Kuomintang reactionaries, established a nationally unified new tax system and particularly abolished the personal income tax. Workers’ wage income, the remuneration for the commune members’ labor and other income from labor are placed entirely at their own disposal. Even writers, actors or actresses and others who receive relatively high wages do not pay personal income tax. This is inconceivable to the people living in the capitalist countries.
“No Personal Income Tax in China”
It is important to note that socialism is a transitional stage between capitalism and communism, so there could be many stages within socialism. State-capitalism like that in the New Economic Policy, New Democracy, or People’s Democracy could be considered socialist if it is implemented with the overall goal of communism. On the other hand, if state-capitalism is implemented without further transitions to communism, it is revisionist; if the working masses and their party do not pull society toward communism, they will easily fall back to capitalism. This is what happened in the USSR, China, Albania, and the people’s democracies across the world. That is why we push for full communism, which is the end goal. More information on this is in the “Modern Conception of the Meaning of Socialism” section.
Socialism leads to the fading away of classes as a whole, and so communism can form. Communism is classless, so everyone has the same relations of production. It is stateless, too, since the state is a tool that the ruling class uses to suppress other classes. It has no money because commodity production is eliminated; people produce things for use, not exchange; production and distribution are also very efficient and require little labor. Since more and more goods get subsidized by people’s labor, eventually, all goods and services would be available for people to freely take.
Maoism For The Masses 
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