by Rand Paul
Prime Minister Palme was assassinated in 1986 and Ingvar Carlsson took his place. Stefan Karlsson, at Mises.org, describes this period: “Worried that Swedish growth had trailed most other countries, Carlsson’s government implemented a number of free-market reforms. Among these were the lifting of all currency controls in 1989 and a tax reform that dramatically reduced marginal tax rates.”17
Despite lowering taxes in the 1980s, Swedes were still contemplating fleeing the country in the early 1990s. Daniel J. Mitchell writes, “Stefan Persson, the main owner of fashion retailer H&M, threatened to leave the country in the 1990s because of the wealth tax. The Social Democratic government at the time changed the law, giving him an exemption.”18
As Jordan Drischler points out: “Following overhauls once again in the early 90s and again with the election of the Moderate Party as the majority in 2006, Sweden returned to a free market economy. But some aspects, including universal health care and high tax rates, remained. These lingering effects of Sweden’s socialist era has led to individuals incorrectly labeling their current, largely free market economy as socialist.”19
As far back as 2007, writers were noting that instead of moving toward more socialism, Sweden was becoming more capitalist by lowering its taxes. Mitchell from Cato wrote, “Maybe the next Bjorn Borg won’t feel compelled to move to Monaco now that Sweden plans to scrap a decades-old ‘wealth’ tax that imposes levies on assets—not just on income. . . . The move . . . underscores the country’s efforts to keep successful Swedes and their capital at home by changing its fabled but costly welfare state.”20
But a small country like Sweden doesn’t get a Bjorn Borg every generation. Tennis player Borg did return home for a while in the mid-1980s. It was reported that the Swedish government under Palme allowed him to recover about $500,000 tax-free.21
While taxes remain high according to U.S. standards, lower top rates did ultimately encourage IKEA’s Kamprad to return home. But to this day, Scandinavians still suffer from high individual tax rates even though the overall burden has come down.22
Finally, in 1991, the Swedish electorate voted out the socialist government and elected a center-right government. From 1991 to the present, taxes have come down, regulations have abated, and as a consequence, Sweden now has “the second highest growth rate in western Europe during its new free-market era, between 1991 and 2014,” writes Nima Sanandaji.23
Karlsson reminds us that during this period marginal tax rates were lowered and currency controls eliminated, banks were deregulated, and several state-owned companies were privatized.
The Swedes also deregulated the retail and telecommunications sectors and the airline industry. Deficits were brought down and an attempt was even made to control spending. Sounds more like the policies of Reagan and Thatcher than it does the policies of Bernie Sanders and Elizabeth Warren.
Although American socialists point to the economic growth of the last twenty years as successful socialism, Karlsson concludes: “the relative improvement of performance is due not to high taxes (lower now than previously), but to free-market reforms.”24
Per Bylund writes that the economic depression of the 1990s finally motivated the populace to choose a new government. “The social democratic government resigned, government lost control (to the extent it ever had any), and politicians from all parties got together to enforce strict budget discipline (no deficits) and consistently cut back on the state’s generous welfare benefits. At the same time, pseudo-market forces were reintroduced through Friedmanite voucher systems, private health care was no longer prohibited, and the national pharmacy monopoly was privatized. Even Sweden’s railway traffic is now carried out largely by private companies.”25
In short, as American socialists clamor to increase American corporate and individual taxes, Sweden’s taxes have come down. As Chris Matthews at Fortune reports: “since the 1990s, the total taxation of the Swedish economy as a percentage of GDP has fallen more than 5%, while labor market reforms, such as Denmark’s cutting of unemployment benefits have helped Scandinavian economies rocket up measures of economic freedom . . . as Sanandaji puts it, Scandinavia is slowly ‘returning to its free market roots.’”26
Chapter 16
Welfarism Requires High Middle-Class Taxes
American socialists who look to Scandinavia might reconsider once they learn that the middle-class tax burden there is significantly higher than in the United States. Contrary to what Bernie would have you think, it’s not just millionaires and billionaires paying the price. In fact, one could argue that the United States has a significantly more progressive tax structure than Scandinavia, considering that Americans making above $400,000 are already paying more than half of their income in taxes when state and local taxes are added.
Yet the socialist Ocasio-Cortez thinks the rich are getting off scot-free. She’s proposing a new 70 percent tax rate for people making $10 million or more. Brian Riedl of the Manhattan Institute makes several points about this ridiculous proposal:
He writes, “A 70 percent tax bracket would raise very little (if any) revenue, while damaging the economy and sending income and jobs overseas.” Riedl calculates that such a tax would bring in .25% of our GDP while the socialists are proposing to approximately double government spending as a function of GDP.
Today’s socialists, Riedl estimates, want to spend about “$7–$10 trillion over the decade” on the Green New Deal and another $32 trillion on Medicare for All and another $6.8 trillion on a federal jobs guarantee and another $1.4 trillion on student loan forgiveness and $800 billion on free college tuition, a trillion on infrastructure, $270 billion on mandatory paid leave, and $188 billion on Social Security expansion. That comes to a total of over $50 trillion in new spending proposals.
Ocasio-Cortez’s tax on people making over $10 million, Riedl judges, would only bring in $50 billion—that is, if it didn’t chase all the wealthy out of the United States, as happened in Sweden during the 1980s. That’s $50 billion with a b in revenue against $50 trillion with a capital T in expenditures. Sounds like a significant amount of red ink for a country already borrowing about a trillion dollars each year.
The unavoidable truth is that the socialist Christmas list of welfare programs can only be paid for by massive taxes on everyone, including the middle class and the working class, just like the taxes in Europe and Scandinavia.1
Today’s socialists falsely promote that they will pay for their laundry list of new federal spending by taxing the millionaires and billionaires, but it’s a lie.
It isn’t enough to point out that Ocasio-Cortez’s tax brings in $50 billion and her spending proposals cost $50 trillion. Basic math is not enough to win the hearts and votes of today’s voters. Don’t get me wrong, facts are still important but somehow, we must get today’s voters, particularly the youth, to love the liberty of voluntary transactions between consenting adults—capitalism—and to fear the coercion of regulated, controlled exchanges that come only when the government consents or gives you permission.
To millennials who may not care about the numbers or the debt or the taxes, we must impress upon them that socialism also inevitably robs them of choice. A government that owns or controls the means of production can only exert that control by limiting the freedom of choice.2
Most millennials, however, are blissfully unaware of the punishing taxes necessary for socialism or its stepchild welfarism. Millennials are shielded from the burden of taxes because most of them are part of the approximately half of the U.S. population that pays no income tax at all.
In the United States, the top 1 percent of income earners pays nearly 40 percent of the total income tax revenue, and the top 10 percent pays almost 70 percent. Meanwhile the bottom 50 percent of taxpayers paid only 3 percent of federal income tax in 2016. When today’s socialists claim the rich aren’t paying their fair share they are ignoring the facts. The upper middle class and the rich pay virtually all of the income tax in America and our t
ax code is already more progressive than that of Scandinavia.
Endlessly, the left in America decries any tax cuts, and they utilize mathematical fallacies to argue their points. You hear progressives say the tax cut will disproportionately benefit the rich. Well, if taxes are disproportionately paid by the rich, it stands to reason that tax cuts would always benefit more the people who pay taxes.
It bears repeating, since 50 percent of Americans pay no income tax, tax cuts typically only affect the 50 percent of Americans who actually do pay an income tax.3
Modern socialists, and virtually all Democrats (and their mouthpieces in the media), endlessly and breathlessly broadcast the message that tax cuts are for the millionaires and billionaires. This lie needs to be debunked, rebuked, and explained again and again. It is impossible to design a tax cut that does not disproportionately affect the wealthy because the wealthy pay the vast majority of the income tax under our existing, heavily progressive taxation system.4
Socialists also argue for keeping America’s corporate taxes high. However, the Scandinavians have taken the opposite approach. In a sea of high taxation, the Scandinavians do have one exception. Their corporate taxes have long been below U.S. rates. As Kai Weiss reports at the Austrian Center: “Corporate income tax rates are in the 20 percent range in all Nordic countries and thus, in stark—positive—contrast to countries like Germany and France, which can boast rates up to 35.”
If you look at Tax Freedom Day, the calendar day that each individual has paid government its due and begins to earn money for themselves and their family, you discover that it comes earlier for the Nordic countries than it does for Germany, Austria, France, and Belgium.5
It’s amazing that the American left continues to showcase “Scandinavian socialism” as these same countries have steadily reduced taxes and strengthened their capitalist roots. As José Niño reports, “countries like Sweden implemented a number of sensible reforms during the 1990s and 2000s like tax cuts and school choice, while others like Denmark liberalized their labor market to make it more competitive and flexible.” The resulting economic success extolled by American socialists today is a reversing of the high-tax trends of several decades.6
In 2007, thirty years after Sweden’s flirtation with socialism, the government eliminated its estate tax. Their foreign minister Anders Borg explained that it was unsustainable to have wealth taxes that exceeded other European countries. As Dan Mitchell from Cato reports: “Several European countries have dropped taxes on wealth in the last decade, including Denmark, the Netherlands, and Finland.”
Swedish authorities admitted that there was a great deal of Swedish capital outside the country that could create jobs if brought home to be invested. Eliminating the wealth tax was a very direct way of trying to get wealthy Swedes to bring their capital home. What does Ocasio-Cortez say about that? Do any of today’s socialists want to join Sweden in eliminating the estate (wealth) tax? Absolutely not! Rather, Bernie wants to make the estate tax more progressive.7
In fact, for American socialists touting Sweden’s high taxes, they need to realize that Sweden no longer has the highest worldwide tax rate. They’re still number four, but they’ve recognized the problem and have headed in the right direction. Their spending still consumes more than 50 percent of their nation’s GDP, but as Bylund reminds us, “the national debt as a fraction of GDP, not including pensions and other liabilities, has halved over the course of the last two decades. Twenty years of reform, away from the extensive welfare state and socialist experiment, explains Sweden’s relatively strong finances in the present financial crisis.” It isn’t so much socialism that explains Scandinavian success but rather Sweden’s turn away from socialism.8
Scandinavia’s retreat from socialism continues to this day. In recent elections, four out of five Nordic nations chose center-right governments. Wonder if someone should tell America’s young socialists that not only is Scandinavia not socialist, but they seem to be heading back toward American capitalism.9
Are taxes still high in Scandinavia? Absolutely. In Sweden, the top rate is over 60 percent and that rate applies to incomes beginning at $75,000. According to John Larabell, that 60 percent includes a 34 percent municipal tax that everyone pays.
Norway, with its vast oil wealth, has a top rate of only 38.7 percent, which was lower than the U.S. top rate of 39.6 percent until the 2018 Trump cut lowered the top rate to 37 percent. Like most of Scandinavia, the top rate in Norway starts at a much lower level of income so their top rate actually captures a significant swath of the middle class.
As Larabell puts it, “While the rich do get soaked in Scandinavian countries, the middle class gets soaked even more. Even working-class people with relatively low-wage jobs get hit with tax rates that would be considered high in America.”
Once you add up the national sales taxes, old-age pension taxes, and income taxes, it is not uncommon for folks in the middle class in Scandinavian countries to pay 70 to 80 percent of their income in taxes.10
So, really, today’s new American socialists must come clean. They love, love, love Scandinavian “socialism” but they ignore the fact that the Scandinavian welfare state is actually financed by extraordinarily high middle-class taxes.
In America, these socialists claim they will finance their dreams of “Medicare for All” by sticking it to the rich and leaving the middle class alone. Which is it? Come on, socialists international, which is it? Do you want the Scandinavian welfare state financed by the world’s highest taxes on the middle class? Or are you making the argument that you can tax the rich at 200 percent of their income?
Bernie and his merry band of socialists inform us that they only want to punish the top 1 percent. What they won’t admit is that the top 1 percent already pays more than a third of all U.S. income tax revenue and the top 10 percent pays two-thirds of our income taxes. The question is: At what point do the producers finally flee to Galt’s Gulch?
To get an idea of how ferociously the Scandinavians tax the middle class, consider this analysis from Jesse Plunkett: “In Denmark, any family earning over 1.2 times the average income pays the top rate of 60 percent; this is the equivalent of the 40 percent of American families earning over $70,000 paying the top tax rate.” Even Democrats understand there would be a revolution in America if they proposed an income tax rate of 60 percent on income over $70,000.
In Norway also, the middle class is heavily taxed. All incomes over $94,000 are taxed at 40 percent, whereas in America the top rate applies only to incomes over $426,000.
While Bernie calls for a special tax on billionaires, in Denmark and Norway there are no special tax brackets for the superrich. Rather, the top U.S. income and payroll tax rate is already greater than that of Norway and Germany and England as well.
So, American socialists really don’t want Scandinavian “socialism.” They want all the free stuff of the Scandinavian welfare state, but they want only the superrich to pay for it. American socialists never seem to advocate for the astronomical middle-class taxes and high value-added sales taxes that pay for the cradle-to-grave Scandinavian welfare.11
Chapter 17
American Scandinavians Have It Better Here Than in Scandinavia
It’s not just the left-wing politicians who drool over the Scandinavian welfare state. The partisan, left-of-left economist Paul Krugman seems to have his own personal love affair with the Nordic Nation. He writes: “Danes get a lot of things right, and in doing so refute just about everything US conservatives say about economics.”
Krugman gushes that the Danish welfare state is “beyond the wildest dreams of American liberals.”
Like Bernie, Krugman extols the “free” health care, college tuition, and day care. He admits the taxes are high but doesn’t bother explaining how high or how extensively those high taxes reach into the middle and lower classes.
The takeaway message for Krugman, who never met a tax or government program he didn’t like, is that “taxe
s and benefits just aren’t the job killers right-wing legend asserts.”1
I remember debating him on one of the Sunday morning shows and making the point that government had grown tremendously under President Obama’s watch. He responded that I was misinformed and that government employment had shrunk under the Obama administration.
When questioned further, though, it became obvious that Krugman was slyly referring to both state and federal government together. Of course, state government shrinkage had absolutely nothing to do with Obama and his merry band of Democrats. State government size began to shrink only after the Tea Party tidal wave of 2010 swept in a net of six new GOP governors, and all governors faced decreased revenues during the recession.2
Like Krugman, Joseph Stiglitz seems to have forgotten any sense of academic neutrality to become more of a partisan than an economist. A few years back at a Time 100 event, I just happened to be seated next to Stiglitz. It was a cocktail hour, and I was feeling a bit mischievous, so I asked the Nobel laureate: “I understand you believe that free markets are ‘inefficient’ because information is asymmetrically distributed . . . what do you think is the most important bit of information that needs to be transmitted in the marketplace?”
He didn’t answer immediately. I decided to follow up with my answer, so he didn’t think I had the audacity to quiz him. (Which, I guess, I sort of was . . . ) My answer: prices. Nothing is more important than prices in transmitting information throughout an economy and perhaps the disfunction Stiglitz sees in the free market might be explained by government’s manipulation of the most important price of all: interest rates. I think at this point he became more interested in the person seated to the opposite side of me.
My short interaction, though, makes me unsurprised that Stiglitz has argued that “American policymakers should use Scandinavia as a model for promoting more balanced growth.”3