Some of my left-leaning friends (as well as some non-friends) think Nordic nations such as Sweden are shining examples of successful socialism.
They’re wrong.
Not only are they wrong, but those nations actually are case studies of how big welfare states cause damage to national prosperity (as well as case studies of how unwinding big government is a way to regain competitiveness).
Countries such as Sweden also teach a very important lesson about taxation. John Gustavsson, a doctoral student in economics from Sweden, explains for the Daily Dispatch what’s happening in his country. He starts out by noting that Sweden doesn’t disproportionately screw the rich.
If Europe can have universal health care, pre-K, and all the other welfare state goodies, why can’t America? We could if we just taxed the millionaires and billionaires, the argument goes. Speaking as a Swedish citizen, I can tell you it is not quite that simple. …Sweden doesn’t really tax the millionaires and billionaires—it taxes the poor. In Sweden, it is possible to avoid virtually all capital gains taxes through an investment savings account, which obviously mostly benefits the rich. What about wealth taxes? The Nordic countries have long since moved past them: Denmark abolished its wealth tax in 1997, Finland in 2005, and Sweden In 2007. It’s not about ideological opposition to taxing the rich. It’s that the wealth tax was completely counterproductive and caused capital to flee these countries.
By the way, it’s also worth noting that Sweden’s corporate tax rate is just 20.6 percent, which is lower than America’s rate (even if the Trump tax reform somehow survives the Biden era).
So how, then, does the Swedish collect a lot of revenue?
Simple. Mr. Gustavsson points out that ordinary people get pillaged, particularly those with low levels of income.
…the big difference between the U.S. and Sweden, taxation-wise, is how the poor are taxed. Americans who make less than $12,000 per year pay no federal income taxes. Many who make more than that still end up paying a net zero in taxes once deductions are accounted for. In Sweden, the equivalent is about $2,300. On any money you make above that threshold, you pay a tax rate of about 30 percent, plus payroll taxes. What about deductions? In the US, the average tax refund last year was $2,707. In Sweden, it was $821. On top of this, Sweden has a national sales tax of 25 percent on almost everything you buy. As the poor spend a greater share of their income, this tax disproportionally hurts them. The kind of taxes that the poor are forced to pay in the Nordic countries would be completely unacceptable to the majority of the American public. …Welfare states simply cannot be built on the backs of only the rich. We learned that the hard way, and you will too.
Amen.
I’ve made this same point, over and over again. And some honest leftists (see here, here, here, here, here, here, and here) admit that their agenda requires big tax hikes on lower-income and middle class people. Simply stated, there are not enough rich people to finance big government. So if we copy Sweden, be prepared to empty your wallets and purses.
P.S. Sweden is a good case study for the benefits of Social Security privatization and the Laffer Curve.
P.P.S. There’s fascinating research contemplating whether migration to America changed Sweden’s ideological orientation.
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