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  • 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.

Let's talk about taxes.

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How Sweden Balances High Taxes And Growth

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    joey joey posted on 2021/02/21
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