If You Want Government to Spend Like a Nordic Nation, It Needs to Tax the Middle Class Like One

 

twenty20_bb96649b-cbf1-4e5f-afd8-e585579301f5_sweden_flag-e1454439423712The WaPo’s Max Ehrenfreund has a great Q&A with sociologist Lane Kenworthy, author of  Social Democratic America — a book I have written about a few times. The following bit gets at the idea that it wouldn’t be just the rich paying for the progressive dream of greatly expanded government, Scandinavian-style:

One difference between these two candidates’ [Hillary Clinton and Bernie Sanders] platforms and the social-democratic agenda in your book is that both are talking a lot about raising taxes on the rich, while in the Nordic countries, the middle and working classes pay more in taxes, too.

The tax strategy that these countries have tended to pursue is to spread the tax burden around, and in fact, their overall tax systems are pretty much flat. Almost everybody pays roughly the same share of their pre-tax income in taxes. You have a progressive income tax, but that’s offset by regressive payroll taxes, and especially regressive consumption taxes, which are very large in these countries.

Everybody feels like they’re paying in and getting something out of the system, so the system becomes more legitimate. You’re less likely to get this kind of us-against-them argument from conservatives. Even high income households don’t tend to hate this kind of system.

If you’re going to have a really big government, as these countries do — government spending is the neighborhood of 45 to 50 percent of GDP — if you’re going to do that, you just have to go where the money is. There’s obviously no way you could do that just by tapping money from the rich. Sanders has said that and is acknowledging that.

If we’re talking about a big expansion of public insurance, you have to tax the middle class as well as the rich. In the short turn, for a smaller expansion, I don’t necessarily think it’s a terrible idea to say you’re going to get most of that revenue from the rich. It is possible.

I don’t like Hillary Clinton’s promise, “I’m not going to raise any taxes on anybody in the bottom 95 percent.” I don’t think that’s a smart or productive thing to do, but the general orientation — to raise as much of the additional revenue as you can from those at the top — I don’t necessarily oppose.

Indeed, Kenworthy favors roughly $1.5 trillion in increased annual spending — or 10% of GDP — for a variety of programs, half of which would be paid for by a VAT. Oh, he does briefly explore getting all that dough from the rich. But the “rich” wouldn’t just be millionaires and billionaires. He defines the rich as the top 5% — hundred-thousandaires — not the top 1% or 0.01% or 0.01%. Their average tax rate would need to more than double to nearly 70%. And this static analysis assumes no negative economic impact. When the Tax Foundation looked at the Bernie Sanders tax plan — similar in annual cost to the Kenworthy plan — with a dynamic analysis, it found “after-tax incomes of all taxpayers would fall by at least 12.84 percent.”

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  1. lesserson Member
    lesserson
    @LesserSonofBarsham

    That is the part they always seem to leave out:

    “We’re going to tax the rich!”

    oh, by the way…

    You’re the rich.

    • #1
  2. Ekosj Member
    Ekosj
    @Ekosj

    For reasons to long to explain, this summer I had reason to poke around the Danish tax system. Wow! For people earning less than USD equivalent of about 75,000 dollars the AVERAGE ( not marginal … Average ) income tax rate is about 35%. Incomes over USD 75,000 are taxed at about 50%. They mercifully have a cap … The maximum tax of 51.5% of income.

    Plus the VAT is 25%

    Yikes!!!!

    • #2
  3. Duane Oyen Member
    Duane Oyen
    @DuaneOyen

    James, you need to be more specific when you refer to “hundred-thousandaires”.   I think you are referring to annual income, rather than net worth, the usual meaning of “millionaire” or “hundred-thousandaire”.

    You don’t re-tax assets every year, but only as they are earned; but you usually take a share of new income.  Otherwise, everyone who has a decent 401(k) account and a paid-for house is taxed over and over.

    • #3
  4. Randy Weivoda Moderator
    Randy Weivoda
    @RandyWeivoda

    A top tax rate of nearly 70%.  That really gives people a lot of incentive to become high earners, doesn’t it?  Enact that (without a whole bunch of loopholes and tax shelters like existed prior to the 1980’s) and a lot of people are going to work half a year and take the rest of the year off.  When you hit the level where each additional dollar earned only nets you 30 cents, what’s the point of earning more?

    • #4
  5. Zafar Member
    Zafar
    @Zafar
    Country Median Age Tax % of GDP
    Australia 38.3 25.8
    Canada 41.7 32.2
    Denmark 41.6 49
    Finland 43.2 43.6
    France 40.9 44.6
    Germany 46.1 40.6
    Greece 43.5 30
    Israel 29.9 36.8
    Italy 44.5 42.6
    Norway 39.1 43.6
    Sweden 41.2 45.8
    UK 40.4 39
    US 37.6 26.9

    Most welfare states seem to tax about 40% of GDP, but not all.  For example Australia and the US take a similar proportion of GDP in taxes, but Australia manages a pretty reasonable welfare state.

    • #5
  6. Umbra Fractus Inactive
    Umbra Fractus
    @UmbraFractus

    Zafar: Most welfare states seem to tax about 40% of GDP, but not all. For example Australia and the US take a similar proportion of GDP in taxes, but Australia manages a pretty reasonable welfare state.

    I’ve noticed that most of the countries ranked above us on the AEI index have much more generous welfare states, leading me to conclude that their regulatory states must be virtually non-existent.

    Assuming good faith on the part of the left I’d be willing to accept that trade.

    Of course I stopped assuming good faith a long time ago, so the point is moot.

    • #6
  7. Chris Gregerson Member
    Chris Gregerson
    @ChrisGregerson

    Another aspect of Scandanavian economics is people work. They don’t have an idle class drawing their sustenance from the other 80%.

    • #7
  8. Matty Van Inactive
    Matty Van
    @MattyVan

    UF: “I’ve noticed that most of the countries ranked above us on the AEI index have much more generous welfare states, leading me to conclude that their regulatory states must be virtually non-existent.”

    MV: I’ve heard that Sweden, at least, has a much smaller and more rational regime of regulations than the U.S. Would like to know the details, if it’s true.

    CG: “Another aspect of Scandanavian economics is people work. They don’t have an idle class drawing their sustenance from the other 80%.”

    MV: And one more aspect. Swedes, in the 1990s realized their system was unsustainable and made some serious corrections, slashing spending and actually shrinking the welfare state including parts of the state health care system. Operating from a very leaky memory, they brought debt down from about 80% of GDP to 30%. However, I’ve heard they do have a growing idle class problem, one which can’t be mentioned in their MSM: the the Islamic immigrant denizens of the 55 or so dangerous no-go zones.

    • #8
  9. Full Size Tabby Member
    Full Size Tabby
    @FullSizeTabby

    Chris Gregerson:Another aspect of Scandanavian economics is people work. They don’t have an idle class drawing their sustenance from the other 80%.

    Mr. Pethokoukis in November 2015 had a fascinating interview with another economist on the importance of ingrained Swedish cultural history in why the same policies produce different results in Sweden than in Greece.

    http://ricochet.com/podcasts/ikeamerica-should-the-us-really-be-more-like-sweden/

    • #9
  10. Matty Van Inactive
    Matty Van
    @MattyVan

    Tabby, I will certainly check out that site. Looks interesting.

    I’m reading Sowell’s Wealth, Poverty and Politics as we speak. I’m in the section on cultural factors, and within that section the importance of honesty and trustworthiness. Having it greatly facilitates doing business and therefore economic advancement. Lacking it raises tremendously the costs of doing business. Sowell refers to two surveys. In one, twelve wallets with I.D. and money were left in libraries around the world. I’ve converted the “return rate” to percent. In the other, no details are given, just the percentages. I’ve combined the two surveys here. Notice the dominance of Nordic countries.

    Oslo 100%

    Odense (Denmark) 100%

    Helsinki 92% 11/12

    Stockholm 70%

    USA 67%

    Rio De Janeiro 33% 4/12

    China 30%

    Mexico 21%

    Lisbon 8% 1/12 (Returned by a visiting Dutchman)

    • #10

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