How can taxes build a better society?

As we await Rachel Reeve's budget announcement, Laurence Fletcher wonders what positive tweaks can be made to our economic system.

Laurence Fletcher

Laurence Fletcher is a journalist at the Financial Times.

Few doubt that Chancellor, Rachel Reeves, will be putting up taxes when she presents her first Budget on October 30. The political narrative of recent months has very much been of an alleged fiscal “black hole” of £22bn - or is it £40bn? - that somehow needs to be filled.

While the size of the shortfall and the identity of those responsible are both hotly disputed, and despite a lack of detail from the Treasury about what it actually consists of, the questions now being asked are not whether taxes will rise but which ones and by how much.

Months of speculation have focused on employer National Insurance, capital gains tax and freezing income tax thresholds as areas that Reeves could look to for the additional revenue. But beyond the immediate issue of raising enough revenue to make good any shortfall, lies a deeper, trickier question about the way in which taxes should be levied for the good of society. If a government is to force people and companies to hand over their money, then what is the most ethical way to do this? Who should pay and who shouldn’t? How can tax be used to reduce inequality and build a better society?

Answering such questions is, of course, far from straightforward, because there are plenty of other factors in play.

For instance, some taxes are surely levied because they are simpler to collect. Take income tax - an unpopular measure introduced in 1799, then abolished before being reintroduced as a supposed temporary measure. It could certainly be argued that taxing people’s income - their attempt to get on in life and improve their lot in life - is less “fair” than taxing wealth that has been accumulated by someone’s ancestors years ago. Working hard and earning income is often surely a way of breaking down class divisions. But income tax - contributing 28 per cent of UK government tax take in 2023-24, according to The Institute for Fiscal Studies - has the advantage that it is relatively difficult for the average worker at a UK company to avoid it. Ease of levying it is surely a driver.

Equally, some taxes that might seem “fairer” have deliberately not been levied because of the difficulty in collecting them, and/or because to try to do so could be counterproductive. A wealth tax, for instance, would be “economically damaging”, according to one of the UK’s highest profile tax experts, Dan Neidle. Or take the politically contentious issue of non-doms, a colonial era tax break allowing rich foreigners to avoid UK tax on overseas income. It would be fairer, the argument goes, to tax them on the whole of their income. If they are going to be resident in the UK, then surely they should be taxed like a UK resident whose home is here?

Former Chancellor Jeremy Hunt abolished this regime earlier this year but left a number of concessions that the incoming Labour government pledged to abolish. But non-doms are tax-sensitive and highly mobile, and a number of jurisdictions compete to attract them. Many are entrepreneurs and wealth creators that many countries need. Reports have suggested a clampdown could raise no money or even cost money and could drive people away.

So what can be done to use tax in an ethical way? Paul Williams, research professor of marketplace theology and leadership at Regent College, Vancouver and chief executive of the Bible Society, takes a perspective that he believes offers some solutions.

He takes as his starting point a story in the gospels, where Jesus is asked whether people should pay taxes to Caesar. The question is a trap - either Jesus gives his backing to taxation that is highly unpopular with the Jewish people, or he rejects the tax in an act of rebellion against the Romans.

Jesus replies that they should “pay to the Emperor what belongs to the Emperor, and pay to God what belongs to God.” We are to pay our taxes to those in authority, but we are also to honour God.

While Williams believes that too much emphasis is placed on the Budget and political parties’ promises to be able to fix everything, and that a more radical rethink of our economy is required, he also sees room for positive tweaks to the current system.

One key area is the property market, the manifestation of so much inequality in society, with some people owning multiple houses while others cannot afford to buy one. Williams argues that the ready availability of debt finance has allowed those who already hold assets to easily acquire properties, turning real estate into an investable asset class to the detriment of many of the poorer in society.

“The reason there’s so many homeless people and empty houses is due to debt finance. It makes it easy for a relatively small proportion of the population to acquire a large percentage of the assets.

“The system has allowed a structure in which a small advantage in the beginning can lead to big, big differences over time.”

Williams highlights parts of Devon and Cornwall that have been “completely ruined” by wealthy people from elsewhere buying second homes that used to belong to locals, leaving property out of reach of anyone who lives and works there.

Nevertheless, he believes taxation can be used in this area to help level the playing field.

He proposes a “pretty punitive” marginal rate of tax on ownership of more than one home. (Stamp duty only partly does the job and is a blunt instrument also affecting people moving homes, thereby makes mobility expensive).

“You want to disincentivise the way the housing market is used for speculation,” he says.

“Housing is being treated as a commodity. The problem is, it’s not; it’s not just an asset. It has utility value and a communal and quasi-spiritual value, enabling people to feel rooted.”

Buy-to-lets, meanwhile, are better than having empty second or third homes, but “wouldn’t it be better if occupiers could buy that house?” he adds.

Meanwhile, research by the Financial Times recently found a huge wealth gap between the average millennial and the top 10 per cent of millennials, who are benefiting from family wealth to accumulate substantial housing assets.

So would increasing the rate of inheritance tax - one of the most hated of taxes - and/or lowering the threshold also help reduce some of this inequality? After all, how is it fair that one child in the UK is born to inherit large property wealth while another is born to inherit little or nothing? Or, even worse, that second child will only ever be able to afford to be the tenant of the first, paying them rent for the rest of their lives? Williams is not a fan of inheritance tax per se, arguing that it is “not part of the package” in a Biblical image of a flourishing economy. But he adds an important caveat: “the playing field is not level".

“There might be circumstances to impose a one-off tax on the very wealthy… if you want a transition to a more equitable society.”

Such steps are not easy to take. It is, he admits, probably “career suicide” for a politician to adopt such views. But if we are to take steps towards a fairer way of life, and avoid a two-tier society in decades to come, then maybe the conversation needs to shift this way. Perhaps the Budget could be the time to start.

Review

America

Culture

Film & TV

19 April 2024

5 min read

Cutting America to the bone

Civil War warns against worshipping civic and political violence.

Chris Wadibia

Chris Wadibia is an academic advising on faith-based challenges. His research includes political Pentecostalism, global Christianity, and development.

An explosion occurs at the Lincoln Memorail

Civil War's finale in Washington DC.

A24.

The president of the United States is dead. The film Civil War culminates with soldiers of the Western Forces (a fictional secessionist group composed of California and Texas) posing for pictures with a presidential corpse just minutes after executing him. It’s a chilling climax, with optics reminiscent of American soldiers capturing deposed president of Iraq Saddam Hussein in 2003. The film ends with a warning. No democratic country, no matter the perceived strength of its institutions, is immune from tyranny, civil violence, and the bloody process of state failure. Collapse follows when states lose the capacity to provide solutions to the linchpin challenges negatively affecting their citizens.

A strength of Civil War is the way it articulates a universal political message without defiling itself with the toxic hyper-partisanship asphyxiating real-world American society.

It features a number of loyalist and secessionist geopolitical groups each motivated by a distinctive combination of social, economic, and political interests and goals. These groups include the Western Forces, Florida Alliance, New People’s Army, and Loyalist States.

The film’s storyline prioritises a violently unfolding near future civil war in a United States whose president bucked constitutional tradition by remaining in office for a third term. The president, whose character is modelled after Donald Trump, is the villain of the film, despite being supported by over half of the 50 American states. The Western Forces function as the film's hero group. Unlike the mercilessly murderous and viciously xenophobic soldiers affiliated with the Loyalist States, the soldiers of the Western Forces treat an eclectic team of journalists and war photographers (the film’s main protagonists) with kindness and respect, allowing them to accompany them during the final stages of their assault on the White House and entrance into the belly of the beast, the Oval Office.

The film includes shocking scenes that would make the most patriotic Americans shudder. Shortly after it begins, a suicide bomber associated with the Loyalist States, proudly carrying a large American flag, sprints into the centre of a group of vulnerable people, pleading with agents charged with guarding a water tanker, and detonates a bomb. Dozens of people including children are killed, many of whom were non-White Americans. This scene's power is that it bring home the threats Americans associate with foreign lands. Suddenly the menaces Americans instinctively link with states like Afghanistan, Burkina Faso, and Venezuela exist in cities like Charlottesville, New York, and Washington DC. America is no longer safe, and the threats have come from within instead of from abroad.

The message of Christ applies to theocracies and secular states alike. Every state, regardless of its attitudes toward religion, has an interest in its people living together peacefully.

As an American watching this film from a cozy cinema in Oxford, I thought about how the violence, polarisation, and civic rage depicted in the film already exists in many forms in the country I love from a distance. Shootings, many of them mass in nature, happen every day in an America whose citizens are comfortable with violence but afraid of each other. The United States suffers from an embarrassingly high association with mass shootings, far more than whichever county manages to claim an ignominious second place. Whilst it is unlikely tanks and attack helicopters will surround the White House anytime soon, the casual spirit of violence that has overtaken American society already fosters a level of violence far above the threshold any twenty first century democratic state should tolerate.

I watched this film as a proud American and as a committed Christian, a faith I share with many of my fellow American citizens. My Bible, and theirs, does say we are “citizens of heaven” destined to enjoy an eternal posterity in a New Creation marked by perfect peace and prosperity. However, until Christ returns, and God remakes the cosmos, Christians do have a vital role to play in their everyday civic communities. Whilst Civil War offers a grim view of America’s immediate political future, that message of Christ contains the content needed to cure the gravest challenges bedevilling the United States. I remain optimistic.

Not all Americans identify as Christians or even with organised religion; nevertheless, twentieth century history confirms that states that altogether ignore God will soon wither into an ecosystemic abyss of state-sponsored moral relativism that endorses the use of violence for an increasing, arbitrary range of unsuitable, injudicious, and illegitimate purposes. The message of Christ applies to theocracies and secular states alike. Every state, regardless of its attitudes toward religion, has an interest in its people living together peacefully. Humans need a moral system to provide them (as well as their societies at large) with at least a perceived sense of moral structure. Christ’s message articulates a concept of civic love that challenges the existing worship of civic and political violence. Christ argues that violence in moments of disagreement or dismay is never the appropriate option; the mark of genuine Christian devotion is revealed in the avoidance of violent action even when the use of violence would not categorically be condemned by observers.

Civil War explains how multiple, competing Americas exist. These Americas have different cultures, economic capacities, and sociopolitical ideologies. It teaches that America’s main problem is Americans only love other Americans like them. A number of enclaves exist across American society. Cut off from each other, the development of these enclaves has led to the emergence of micro-Americas so distinctive from each other that some of them no longer view formal geopolitical ties with other micro-Americas as in their best interest.

The same enclavisation portrayed in Civil War exists in the nonfictional, real-life America. However, unlike in the America depicted in the film, the real-life America still has time to solve its sociopolitical troubles and stop the American state from collapsing. I recommend Civil War to anyone interested in being entertained and warned by what a dystopian, worst-case-scenario of near-future American political activity might actually look like.