Monica Prasad, a professor of sociology at Northwestern, discusses tax structures of various countries and its impact on reducing poverty and inequality. Sweden as a country has low poverty & inequality compared to other European countries and America. Whilst the average Swede falls under the high tax bracket (42.9%) compared to the average American (31.7%), on the spending side, Sweden does not target much of its spending specifically to the poor. Tax revenue is spent on universal programs, like health care, which benefit most those who live longest; free college tuition takes from those who do not go to college and gives to those who do. Many aspects of welfare state spending in Sweden — as in other European countries — are linked to income, so that the more you earn, the more you receive in benefits. This is enormously effective, because it gives an incentive to Swedes to work hard and earn more. Poverty and inequality do get reduced, though not by redistribution from rich to poor, but rather by redistribution within classes — from the healthy to the unhealthy, from the young to the old and from the lucky to the unlucky.
Monica says that Governments have to adopt policies that reduces poverty & inequality yet are business friendly.
“In the recent rush of proposals to tax the rich, Democrats have forgotten — or never really cared to learn — an important lesson: The countries that have been most successful at reducing poverty and inequality have not done it by taxing the wealthy and giving to the poor. Take Sweden, a country often cited by progressives for its extensive social programs. Sweden has very low poverty and inequality, and economic mobility is significantly higher than it is in the United States; a poor Swede is much more likely to become middle class than a poor American is.
We can learn from Sweden, but the lesson is not what many people think. Rich Swedes do get taxed at high rates, but so does everyone else: The average American worker’s total tax burden is 31.7 percent of earnings, compared with 42.9 percent for the average Swede. The Swedes actually tax corporations less: 19.8 percent, compared with 34.2 percent in the United States in 2017, the last year for which we have comparative data — and yes, that’s after all the loopholes and deductions have been accounted for. The American rate will be lower after the 2017 tax bill, but it’s still unlikely to be as low as Sweden’s. Estate tax? In the United States the average effective rate is 16.5 percent. In Sweden, it’s zero. Swedish national sales taxes, which fall disproportionately on the middle classes, are much higher than sales taxes in the United States. In France, another country held up as an exemplar by progressives, the economist Thomas Piketty and his collaborators found the overall tax structure was actually a bit regressive, meaning the wealthiest pay slightly lower rates of tax than the less wealthy. Throughout Europe, since World War II, the rule has been high taxes on labor and low taxes on capital.
On the spending side, Sweden does not target much of its spending specifically to the poor. Tax revenue is spent on universal programs, like health care, which benefit most those who live longest; free college tuition takes from those who do not go to college and gives to those who do. Many aspects of welfare state spending in Sweden — as in other European countries — are linked to income, so that the more you earn, the more you receive in benefits. This is enormously effective, because it gives an incentive to Swedes to work hard and earn more. Poverty and inequality do get reduced, though not by redistribution from rich to poor, but rather by redistribution within classes — as the American sociologist Arthur Stinchcombe once put it, from the healthy to the unhealthy, from the young to the old and from the lucky to the unlucky. These patterns go back to the early 20th century, when many European countries were trying to figure out how to compete with the rising American economic behemoth and decided that they had to nurture their capitalists to do so……………The real lesson to take away from Europe is that progressive social programs are most popular, most effective and most durable when they are carried out in ways that do not damage business prosperity. European social reformers didn’t just reduce poverty and inequality. They created a new reality. When conservatives come into power in European countries, they find they cannot take away the progressive policies. European reformers managed this by embedding progressive policies in business-oriented arrangements. Low taxes on capital are just one example. We don’t need to enact exactly the same policies now — given how much wealthy Americans have benefited over the last several decades, progressive taxation still has a role to play in the United States — but we do need to learn the larger lesson that the secret of the European welfare states is that they are surprisingly business-friendly…………
To move from vision to reality, the Green New Deal coalition must include business groups, manufacturers, farmers and unions, and reformers need to genuinely listen to and respond to their concerns. They need to focus on solving problems such as the decline in productivity and work force participation, by using the revenue from a carbon tax to create jobs in energy efficiency and renewable energy, and by using higher taxes on capital gains to fund infrastructure, education, and research and development. Green reformers also need to explain the enormous business opportunity that this historic shift to a zero carbon economy presents. Get businesses to make investments in renewable energy and energy efficiency, and you make your policies not only more feasible, but also irreversible.
None of this would create a European-style welfare state. But if done right, it would create something even more extraordinary: a new model of capitalism that European progressives themselves would, someday, try to imitate.”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
