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Friday, April 20, 2018

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America should follow the Scandinavian model of taxation


Scandinavian countries provide a stable environment for a low corporate tax rate. | Courtesy of Wikimedia Commons

During his presidential run, Bernie Sanders campaigned on the fact that places like Sweden, Norway, Denmark, etc. all have better tax systems than the United States. Sanders continuously brought up these countries to further his platform. 

So what makes these countries’ tax systems superior, according to Sanders?

He would answer that these countries’ superiority comes in how they tax the wealthy and use the subsequent money to prop up a generous welfare and healthcare system. These things are partially true. The average highest level income tax for people living in Sweden, Norway, Denmark, the Netherlands and Finland is 51%. Despite this incredibly high income tax rate, wealthy people remain in this conglomerate of countries.

But why do the wealthy people stay?

Base-level economics would tell us a high income tax rate would create a mass exodus of industry. These countries would then become business wastelands. However, corporations station themselves in these countries because they do not have to offer benefits, a minimum wage or education. The government already provides all these benefits.

These countries also retain a healthy middle class and a wide base of taxpayers because they have a generous welfare system and a widely educated populous.

One thing corporations like more than not having to pay their workers large benefits is not paying a high tax. This is where Bernie’s message becomes muddled. Bernie Sanders, again, said the U.S. should adopt the model these countries have because it’s a superior model. The fact remains the five countries Bernie loves so much have an average corporate tax rate of 23.5%.

This is a 15.8% lower corporate tax rate than the U.S.

The U.S. has a corporate tax rate of 39.3% — one of the highest in the world. The U.S. does not have universal college education, a broad welfare state or universal healthcare. Corporations in the U.S. are forced to offer benefits to their employees so they’re competitive. Though people in Scandinavian countries are heavily burdened with income taxes, they enjoy broad benefits, and corporations provide many jobs.

This leads to the inevitable conclusion that will upset people on the left and right: If we want an economy as stable as the Netherlands, the U.S. should raise its income taxes, but substantially lower its corporate taxes.

Governments should tax income, not profits.   

Columnist Cameron Barrett is an economics senior and can be reached at [email protected]

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