How Sweden Balances High Taxes And Growth - YouTube

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.