Swedes Find World’s Highest Income Levy Taxing, but They Think Burden Is Fair

Swedes may not love the tax man, but they wouldn’t dream of revolting against the highest tax rate in the world. On the contrary, most dutifully believe in paying their share of maintaining the welfare state.

Like everyone else, the 8.4 million Swedes have an aversion to parting with their money. Yet 62% said in a recent study that they were only paying their fair share for the country’s exhaustive social services.

“The demand for equality through progressive taxes is more apparent here than in other countries,” said Axel Hadenius at Uppsala University, who conducted the study.

Defying the Theorists

Swedes defy both Marxist and supply-side economic theories of social attitudes, he said, by not basing their attitudes toward the tax system on their own self-interest.

“The support for hospitals, education and full employment is very strong, and people are willing to pay for it. Housing and welfare benefits, however, lack the same unison support.”

Total taxation is well over 50% of Sweden’s gross national product. For several years it has rated the most-taxed country in the 24-nation Organization for Economic Cooperation and Development, where total tax revenue is about 37% of GNP on the average.

The average Swedish industry worker pays 35% tax on an annual income of $15,600. A company is taxed another 37% of the worker’s gross salary.

Despising the Marginal Tax

Sweden’s sky-high taxes make honesty expensive. Different studies show the black economy to be between 5% and 20% of the gross domestic product.

Yet according to Hadenius’ study, the only widely despised tax is the marginal tax, which eats up to 80% of salary increases and overtime payments.

Economist Assar Lindbeck said this marginal tax cripples society because work does not pay.

“It has become more difficult to influence your own economic situation by working,” he said. “The tax system is systematically destructive for competence enhancing and productive work.”

The Swedish Federation of Industries said high personal taxes hamper Sweden. Many capitalists have emigrated in the 1980s, said Johan Salsback, a federation director, and scientists considering more challenging work abroad may view taxes as the last straw.

Economy’s in Good Health

“We can’t insulate ourselves and have a completely national tax policy.” he said. “Local heads of foreign subsidiaries have to be paid more than our executives to net the same here as at home.”

Yet a January report by the Brookings Institute, a Washington-based liberal think tank, surprisingly found Sweden’s economy in good health despite the tax burden.

Even so, Finance Minister Kjell-Olof Feldt, inspired by the U.S. tax reform, made radical suggestions recently for lowering income taxes and plugging loopholes.

He conceded that the tax system is an invitation to tax evasion and avoidance. Tax advantages have become a more important criteria for investments than profits, distorting the economy.

So Feldt put forward a “sketch” reduction of tax rates to three levels: 33%, 45% and 60%. His proposals will be debated at the Social Democratic Party Congress in September.

To keep revenue intact, Feldt suggested widening the base for wealth tax, corporation tax, the value-added (sales) tax and other levies that Swedes willingly pay for their welfare.

The constitution itself works against grass-roots tax revolt by shutting out any small group from its legislature, the unicameral Riksdag. At least 4% of the votes cast in an election are required for a party to enter the Riksdag.