Inequality Is Forcing US Towns To Try Scandinavia-Style Taxation — And It's Working

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http://www.businessinsider.com/us-towns-try-scandinavia-style-taxation-2014-7


People relax in a city square in Stockholm, Sweden.

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Could this system work to combat income inequality in the United States? Usually, the assumption is no, even though the most popular social insurance program in the country, Social Security, fits this template. We’ve recently published research that adds surprising support for the argument that the European model of progressive spending funded by broad-based taxes could work more widely here — by showing that it’s already happening at the local level.

With our co-author, Fernando Ferreira, we examined three decades worth of data from more than 5,000 American municipalities and school districts. We found that, as inequality rises, American cities and towns have been spending more on the poor and the middle class, funded by higher taxes on these groups.

Because most cities don’t have the power to tax income, they usually use property and sales taxes, which tend to hit all residents or fall more heavily on those who are middle class or lower income. As in Scandinavia, people are paying for their own increased services.

Our finding that municipal spending rose alongside inequality runs contrary to the view of many economists, who say that income inequality erodes support for essential public investments. We find that the increase in income inequality experienced by the typical city is associated with an $88 increase in expenditures per resident on top of the $900 per resident on local services spent by the typical city each year.



Read more: http://www.slate.com/articles/news_and_politics/jurisprudence/2014/07/rising_inequality_american_towns_are_spending_more_like_scandinavia_pull.html#ixzz37RJGoDEO

[Erich Bloodaxe BSN]

1. That link at the bottom goes to an article that includes

a link to the published research paper. Skimming through it, I'm a bit dubious about how they describe the taxation 'working'.

What they seem to be showing is that yes, the spread of wealth does shrink under such a system, and there are far fewer people left in deep poverty, but as I think should be intuitive to most folks, when you raise taxes in this way, you take a tiny bit more from the wealthy, but are essentially merely compacting the spread at the lower end of the wealth spectrum, so that most of the people in the lower 4/5 or so winding up clumped around their own median, such that those on the lower end of the 'middle' move up, and those on the top end of 'middle' move down.

So the rich stay on as rich outliers, but most everybody else winds up a lot closer to the same. It's certainly helpful for the poor, but it stresses what's left of the current middle since the amount taxed is a far greater percentage of total income to those in the middle rather than the rich. I can see why business insider would push it, since it largely fails to address the wealth inequality between the masses and the very wealthy, and merely makes everybody at the bottom more equal among themselves.