Explainer

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Economics

29 October 2024

6 min read

How to tax ethically to avoid a two-tier society

From income tax to property and inheritance taxes, which is fairer?

Laurence Fletcher

Laurence Fletcher is a journalist at the Financial Times.

Sarah Agnew on Unsplash.

Few doubt that Chancellor Rachel Reeves will be putting up taxes when she presents her first Budget on October 30th.

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.

“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.”

Paul Williams

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 Biblical perspective that he believes offers some solutions.

He takes as his starting point a story from the gospel of Matthew, 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, he says, “completely ruined” by wealthy people from elsewhere buying second homes, 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 said.

“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.

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Education

Leading

26 July 2024

5 min read

Why I teach over my students’ heads

Successful teaching is a work of empathy that stretches the mind.

James K.A. Smith

James is a philosopher, cultural critic and author.

A blackboard covered in chalk writing and highlights.

James's chalkboard.

I’ve been teaching college students for almost 30 years now. As much as I grumble during grading season, it is a pretty incredible way to make a living. I remain grateful.

I am not the most creative pedagogue. My preference is still chalk, but I can live with a whiteboard (multiple colors of chalk or markers are a must). Over the course of 100 minutes, various worlds emerge that I couldn’t have anticipated before I walked into class that morning. (I take photos of what emerges so I can remember how to examine the students later.) I think there is something important about students seeing ideas—and their connections—unfold in “real time,” so to speak.

I’ve never created a PowerPoint slide for a class. I put few things on Moodle, and only because my university requires it. I’ve heard people who use “clickers” in class and I have no idea what they mean. I find myself skeptical whenever administrators talk about “high impact” teaching practices (listening to lectures produced the likes of Hegel and Hannah Arendt; what have our bright shiny pedagogical tricks produced?). I am old and curmudgeonly about such “progress.”

But I care deeply about teaching and learning. I still get butterflies before every single class. I think (hope!) that’s because I have a sense of what’s at stake in this vocation.

I am probably most myself in a classroom. As much as I love research, and imagine myself a writer, the exploratory work of teaching is a crucial laboratory for both. I love making ideas come alive for students—especially when students are awakened by such reflection and grappling with challenging texts. You see the gears grinding. You see the brow furrowing. Every once in a while, you sense the reticence and resistance to an insight that unsettles prior biases or assumptions; but the resistance is a sign of getting it. And then you see the light dawn. I’m a sucker for that spectacle.

This is how the hunger sets in. If you can invite a student to care about the questions, to grasp their import, and experience the unique joy of joining the conversation that is philosophy.

Successful teaching is, fundamentally, a work of empathy. As a teacher, you have to try to remember your way back into not knowing what you now take for granted. You have to re-enter a student’s puzzlement, or even apathy, to try to catalyze questions and curiosity. Because I teach philosophy, my aim is nothing less than existential engagement. I’m not trying to teach them how to write code or design a bridge; I’m trying to get them to envision a different way to live. But, for me, it’s impossible to separate the philosophical project from the history of philosophy: to do philosophy is to join the long conversation that is the history of philosophy. So we are always wresting with challenging, unfamiliar texts that arrive from other times that might as well be other planets for students in the twenty-first century.

So successful teaching requires a beginner’s mindset on the part of the teacher, a charitable capacity to remember what ignorance (in the technical sense) feels like. To do so without condescension is absolutely crucial if teaching is going to be an art of invitation rather than an act of alienation. (The latter, I fear, is more common than we might guess.)

Such empathy means meeting students where they are. But successful teaching is also about stretching students’ minds and imaginations into new territory and unfamiliar habits of mind. This is where I find myself especially skeptical of pedagogical developments that, to my eyes, run the risk of infantilizing college students. (I remember a workshop in which a “pedagogical expert” explained that the short attention span of students required changing the PowerPoint slide every 8 seconds. This does not sound like a recipe for making students more human, I confess.)

That’s why I am unapologetic about trying to teach over my students’ heads. I don’t mean, of course, that I’m satisfied with spouting lectures that elude their comprehension. That would violate the fundamental rule of empathy. But such empathy—meeting students where they are—is not mutually exclusive with also inviting them into intellectual worlds and conversations where they won’t comprehend everything.

This is how the hunger sets in. If you can invite a student to care about the questions, to grasp their import, and experience the unique joy of joining the conversation that is philosophy, then part of the thrill, I think, is being admitted into a world where you don’t “get” everything.

This gambit—every once in a while, talking about ideas and thinkers as if students should know them—is, I maintain, still an act of empathy.

When I’m teaching, I think of this in a couple of ways. At the same time that I am trying to make core ideas and concepts accessible and understandable, I don’t regret talking about attendant ideas and concepts that will, to this point, still elude students. For the sharpest students, this registers as something to learn, something to be curious about. Or sometimes when we’re focused on, say, Pascal or Hegel, I’ll plant little verbal footnotes—tiny digressions about how Hannah Arendt engaged their work in the 20th century, or how O.K. Bouwsma’s reading of Anselm is akin to something we’re talking about. The vast majority of students won’t be familiar with either, but it’s another indicator of how big and rich and complicated the intellectual cosmos of philosophy is. For some of these students (not all, certainly), this becomes tantalizing: they want to become the kind of people for whom a vast constellation of ideas and thinkers are as familiar and present as their friends and cousins. This becomes a hunger to belong to such a world, to join such a conversation.

This gambit—every once in a while, talking about ideas and thinkers as if students should know them—is, I maintain, still an act of empathy. To both meet students where they are and, at the same time, teach “over their heads,” is an invitation to stretch into new terrain and thereby swell the soul into the fullness for which it was made. The things that skitter just over their heads won’t be on the exam, of course; but I’m hoping they’ll chase some of them for a lifetime to come.

This article was originally published on James K A Smith’s Substack Quid Amo.