Let's talk about taxes. They're a big political
issue, especially now. New York congresswoman Alexandra Ocasio-Cortez
has proposed a 70 percent marginal tax rate on wealthy
Americans as part of her Green New Deal. Today is the day that we
truly embark on a comprehensive agenda of economic, social and racial justice
in the United States of America. It sounds like a big number
but there's another country where some workers are
paying similar taxes. Sweden. This Nordic country is often
known for its picturesque landscape, ice hockey prowess, and companies
like IKEA and Volvo. But, Sweden is also known to have
some of the highest taxes in the world and without
costing its economy. So how did a country with fewer
than 10 million people pull it off? This is Torben Andersen. He's a professor with the
Department of Economics and Business Economics at Aarhus
University in Denmark. The short version of the story
is that Sweden and the other Nordic countries that
have high taxes. And they have fairly
good economic performance. The simple explanation is that you
cannot judge the effect of taxes without knowing what they are
financing. I mean the Nordic countries, a large part of
taxes goes to finance education, health and other things,
in various ways actually support the labor supply
and high employment rates. In other words Sweden has been
able to support both high taxes and high economic growth because of
how it spends those taxes. Tax revenue supports generous
childcare programs, gives employees vast leave of absence
opportunities and helps offer basically free higher education. Those programs in turn help
make Swedish citizens more employable. They also don't have to
ration big portions of their paychecks or things like
daycare or student loans. that makes them
better consumers. The average tax wedge for a
Swedish worker with an average income is about 43 percent, but the income
tax can go as high as 61.85 percent depending on how high
the income is. And the corporate tax rate
lies at 21.4 percent. What's a tax wedge,
you might ask? It's the difference between what a
worker pays in total taxes and what it costs to employ them. Basically the difference between your
take home pay and your total pre-tax paycheck. It's also a measure of how
taxes can drag down employment. Sweden has had pretty steady GDP
numbers since its recession in 2012 and during the 2008 crisis,
and even before that Sweden suffered a severe recession back
in the 1990s. And prudent reforms to its banking system
and regulations helped it bounce back in a big way
through the next few decades. Sweden now has the 12th highest
GDP per capita in the world. In fact other high tax
Scandinavian countries like Norway and Denmark also ranked in the top 10
countries when it comes to GDP per capita. Sweden's tax system has,
of course, income taxes. It also has a
high level of social contributions. And the end of the
day, it's not so important whether the taxes are collected
in one way or another. They're still a wedge in the
labor market creating a difference between the cost of labor to
the employer and the take-home wage after taxes and all social
contributions to the workers. So for example a single
worker making roughly seven hundred twenty six thousand Swedish krona a
year in salary or about $78,000 in U.S. dollars would have a marginal
tax wedge of 69.7 percent. That percentage is nearly
what Alexandra Ocasio Cortez is suggesting. But she's saying that this tax
rate would apply to those making over $10 million dollars a year. Where do these tax
dollars go in Sweden? They pay for things like
childcare, health care and education. But if you look at an
average family, yes they pay taxes. But then on the other
hand they don't have any expenditures on education for the
kids and so on. So they give out a lot of
money on one hand, they also get appreciated services back. Of
course, nothing is perfect but they still get value for money.
And you can also see that politically there's very broad support
for maintaining this system. But it's up to Swedish politicians
to decide how to spend tax revenue. This is Johan Norberg. He's a senior fellow
at the Cato Institute. We've got more revenue from
the people so the politicians can put it to work where they find it
most of interest to people or to themselves. You pay when you work
and it's distributed to yourself when you have children or
when later on when you need more health care or
something like that. So it's more a redistribution
within the lifecycle of people, more than redistribution between different
groups of people from the rich to the poor.
And so it means, more public services. But
it also means, we pay for it ourselves. So what's the big
deal against high taxes? In Sweden, they get you
top-rated health care and higher education that doesn't put people
in six figure debt. In the U.S., advocates for lower income taxes say
they stifle economic growth and consumer spending. So we have this paradox with
Sweden and the the other Nordic countries that taxes and taxes
wedges are relatively high. And at the same time
employment rates are high. So it's hard to say that taxes or tax wedges in themselves are causing huge negative
effects of employment. That's simply not the case. In fact, Sweden has one of
the highest employment rates with over 77 percent of working age citizens
employed as of the third quarter of 2018. To compare, the same rate clocks in
at 71 percent in the United States. A 2012 study showed that
countries with higher taxes can stifle entrepreneurial success. But that hasn't been
the case in Sweden. Some tax dollars go into a
leave of absence program that allows a worker to take unpaid time
off while retaining job security and status. In 1998, Sweden started the right
to leave to conduct a business operation act. It gives employees the right to take
a leave of absence of up to six months to start
their own company. That is if the company won't
be a competitor to their current employer. Now, Stockholm has its
own Silicon Valley. Several startups born there have been
valued at more than a billion dollars. Like Spotify. Candy Crush. Minecraft. and Skype. The last two of which
were bought by Microsoft. In Sweden, there are 20
startups for every 1,000 employees versus five for every
1,000 in the U.S. And for some of those entrepreneurs
who may have come into wealth along the way, there's an absence
of other taxes they would maybe have to pay
if they lived elsewhere. Sweden is actually quite friendly
to large owners of capital. We don't have taxes on property, no
taxes on wealth, no taxes on gifts or inheritance. But instead it comes from
income taxes but also from consumption taxes. And that's
the major difference between Sweden and the United States. We have almost as much in
value added taxes on consumption and excise taxes on different goods, as
we get in income taxes. Somewhere between high employment rates,
high taxes and support to those with the entrepreneurial
spirit, Sweden's economy has stayed strong. Sweden though isn't immune to
the ongoing global growth slowdown. In fact, the Swedish krona has
been the worst performing major currency in 2019. I think the outlook, as for
many other countries, is that growth will become somewhat lower. And of course there are
many other uncertainties, also things happening outside Sweden
or Nordic countries which affect Sweden. But they are sort
of pretty OK compared to other countries.
