How Sweden fights inequality -- without soaking the rich

[Recursion]

http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-not-the-solution-to-inequality

There seems to be an obvious solution to rising inequality: higher taxes. But there's an inconvenient fact here. The way most advanced, industrial countries have made real gains on inequality is through relatively regressive taxes that fund programs that reduce inequality. In fact, America's tax system is already unusually progressive by international standards. Our ongoing research suggests that this unusual relationship is not a coincidence.

The countries in northern Europe that have made the biggest strides in reducing economic inequality do not fund their governments through soak-the-rich, steeply progressive taxes. Instead, they have broad-based taxes that ask all workers to contribute to a generous welfare state. Countries with highly progressive taxes that disproportionately hit the rich — like the United States — tend to have the stingiest welfare states.



In this chart, redistributive effort refers to percent reduction in the market Gini coefficient — a useful measure of inequality. Household tax progressivity measures how much more (or less) of the tax burden falls on the wealthiest households, compared to households at the middle and the bottom. Both measures are from the OECD.

There's a reason governments in nations with highly progressive taxes end up spending less to combat inequality — those taxes raise relatively little revenue for both economic and political reasons. For instance, the highly progressive taxes in the United States have fostered intense backlash from powerful economic elites, pushing high-earning individuals and firms to find loopholes and lobby for top-end cuts.

European countries get a lion's share of funding from their VAT, which is incredibly regressive...

[Nye Bevan]

1. Good to see that capitalism and free trade can work well (nt)

[Sherman A1]

2. Interesting

thanks for posting!

[Live and Learn]

3. The link is not working. Interested in reading it.

Bookmarked to try again later.

[Recursion]

5. Works for me

Try http://www.vox.com and look for this (I think it's still on their front page)

[Live and Learn]

7. Not working on on Firefox, at least.

Just keeps spinning.

I will try another browser.

[Live and Learn]

11. Got it with Explorer but I have real problems with the article.

Countries with highly progressive taxes that disproportionately hit the rich — like the United States — tend to have the stingiest welfare states.

How the heck are our taxes highly progressive on the rich when they are lower than they have been in decades? At the same time the rich have experienced unprecedented percentage increases in income while the rest of the nation's income has stagnated or fallen.


Show me some real statistics.

[Recursion]

16. In comparison to Europe we have a very progressive tax system

European countries get the bulk of their funding for social spending from the VAT (a national sales tax) which hits the poor and middle class much harder than the rich.

Show me some real statistics.

They did. They charted the progressivity of taxation against the income inequality of the population.

[Fumesucker]

4. Buffett says he's still paying lower tax rate than his secretary

http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes/

Warren Buffett says even though he and other top earners are paying higher taxes this year, he thinks he's still paying a lower rate than his secretary.

In 2013, capital gains for those earning more than $400,000 ($450,000 for couples) will be taxed at 20%, up from 15%. And high-income households also will pay an additional 3.8% in Medicare taxes on their investment income for the first time. The top marginal tax rate also rose for the wealthiest wage earners, but since Buffett's income is from investment gains, not wages, that's not a factor.

But part of the problem is that his secretary's tax bill also went up since a partial payroll tax holiday ended, raising what she pays for social security by 2 percentage points.

"I'll be a fair amount higher, 8 or 9 points higher," Buffett said of his own tax rate in an appearance on CNBC Monday. "But the differential between me and the rest of the office, not just my secretary but the rest of the office, was greater than that. It'll be closer, but I'll probably be the lowest paying taxpayer in the office."

[Recursion]

6. And European taxes are more regressive still

The VAT is a huge revenue source for most European countries, and is incredibly regressive (moreso even than most US states' sales taxes, because those tend to have exemptions for commonly-purchased necessities).

[Fumesucker]

8. The point being that the "rich" aren't being "soaked" in the USA

Not if they are paying a lower tax rate than their secretaries.

So the entire premise of the article is called into question.

Hang around anyone with substantial investments for a while and you'll find out that there are a great many ways of reducing your tax liability if you have the wherewithal to get the correct assistance in tax planning.

It's the poor schmuck making $12/hr who goes to H&R Block to get his taxes done that really gets soaked, not the billionaires with battalions of accountants and tax lawyers.

[Recursion]

9. Right, that's the article's point

We have relatively high top marginal rates and corporate marginal rates, but the effective rate ends up not being very high. But we're still more progressive in our effective taxation than most European countries. And the empirical point of the correlation between higher progressivity and higher inequality is, well, empirical, and so hard to argue with.

[Fumesucker]

10. Correlation does not imply causation

What I noticed about that chart was as you went to the right on it the nations became steadily less ethnically homogenous with the real melting pot, the USA, falling at the bottom right corner. So there's another correlation.

[pampango]

34. I think ethnic homogeneity has little to do with it. Immigration rates are higher in other countries

than in the US.

Immigrants (foreign-born residents) of Sweden are 14.4% of the population. In Denmark it is only 7.5% and in Finland 4.4% but in Norway it's 10.9%; Germany 12.9%; the UK 11.3%; the Netherlands 11.9%; Canada 19.6% and Australia 26.5%) The figure for the US is 12.5%.

For every low-immigration Denmark there is a high-immigration Sweden, for every Finland there is a Norway. For every UK there is a Canada.

http://www.oecd.org/migration/integrationindicators/keyindicatorsbycountry/name,217269,en.htm

Finland and Denmark have immigrant populations well below the level of the US, but the other countries have immigration rates comparable to, and in some cases much higher than, the US.

Most of these countries were historically more ethnically homogeneous than they are today, yet they maintain their safety nets and equitable income distributions. Perhaps their commitment to government-provided safety nets developed during periods of greater ethnic homogeneity but they have maintained them in the modern world of immigration and increasing diversity.

[Live and Learn]

13. And, taxpayers in those other countries actually derive

a lot more goods in return from those countries than do any taxpayers (but the rich) in the US.

The rich derive the most from government services and therefore should happily shoulder their burden. Or perhaps, we should just be done with it and eliminate the government and it's services. I wonder who that would scare the most?

[Luminous Animal]

12. Bullshit

http://money.cnn.com/interactive/pf/taxes/top-income-tax-rate/?iid=EL

[Live and Learn]

14. +1 nt

[Fumesucker]

15. I thought that chart was revealing enough to post it here

[Recursion]

17. Nope

We have a much less regressive tax system than most European countries because we don't have a VAT. I don't see why people resist such an obvious fact.

Your chart is just showing marginal rates of income tax.

[Fumesucker]

18. Most states have sales taxes

We have a political party who loves pushing sales taxes and another one that doesn't mind it either.

The marginal rates in some of those countries are considerably higher than the USA so they are indeed "soaking the rich".

If the US was "soaking the rich" as the article claims then the handful of Walton heirs would not have the same assets as the bottom 40%+ of the American population.

Not to mention that even if the correlation means causation the article makes no effort to determine which way the causal chain points.. Do lower levels of inequality mean that taxes don't need to be so progressive or do more regressive taxes decrease equality?

[Recursion]

19. They do, and total tax burden from all jurisdictions would be an interesting comparison

But then again a lot of European subjurisdictions have sales taxes too.

If the US was "soaking the rich" as the article claims then the handful of Walton heirs would not have the same assets as the bottom 40%+ of the American population.

Except, they clearly do have the same assets as the bottom 40% of the US population, so obviously the article is on to something: increasingly progressive income tax systems don't actually translate into reduced income inequality. If anything, the opposite seems to be the case.

[Fumesucker]

23. If the US *was* "soaking the rich" then the Walton fortune would not exist in the first place

The article has found a correlation, whether the correlation is related to some causation remains to be seen and also which way the causal arrow might point.

Does greater regressivity lead to more equality or does more equality lead to greater regressivity?

[Recursion]

26. Is your issue with the word "soak"?

It's just an empirical point that our marginal tax rates are more progressive than any European country's except IIRC France (and it's interesting that France isn't in their dataset).

[Fumesucker]

27. I've already pointed out a billionaire that pays a lower rate than his staff

And I'd be willing to wager that's not an uncommon thing at all, you might recall that Romney never released his tax returns.

I think if you put all the taxes and fees Americans pay to government one way or another together the difference in regressivity would not be nearly as marked as that article implies.

The upper middle class wage earners in the US tend to pay quite a lot and even some of the lower upper class, the real upper income groups (ie Buffett, the Walton heirs and so on) skate big time.

[Live and Learn]

20. What the heck, most of us do pay sales tax.

And in CA is quite high. And it is regressive. So by your account, we in CA should be doing very well.

The fact is, sales taxes hurt those that spend their money and help the economy while those that hoard or hide their money overseas benefit without paying a fair share.

I really don't get your point. Let's say a country has only $100,000 in wealth and 1 person has $900,000 of it. He owns nearly all (let's say 90%) of the businesses and therefore uses most of the trucking and railroad transportation. Should he not pay 90% of any government associated costs?

How about police and fire costs? Since he owns 90% of he businesses that might need assistance shouldn't he bear those costs? And schools? Shouldn't the businesses that claim they need this expertise that they are no longer willing to train (so claim they have to bring cheaper labor from overseas) be willing to foot this expense?

Good gawd, I am so sick of he excuses we make for the greedy to expand their pockets while we face expanding poverty and disease everywhere. They won't be happy until we are all dead and they have all the money. I wonder what they will do then?

[Recursion]

21. Well, currently the vast majority of Federal tax receipts are from rich people

I really don't get your point. Let's say a country has only $100,000 in wealth and 1 person has $900,000 of it. He owns nearly all (let's say 90%) of the businesses and therefore uses most of the trucking and railroad transportation. Should he not pay 90% of any government associated costs?

What you are describing would be a flat tax, which pretty much everybody here is against. A progressive tax would have him pay more than 90% of the costs.

(Personally, I'm intrigued by the idea of a flat tax with a very high personal exemption -- say, at or near the median income -- because that actually yields a very progressive effective tax rate.)

[Live and Learn]

25. Except that flat tax suggestions usually only include

working income instead of all income and don't derive the differences in benefits. For instance, the educational, transportation, and security costs mentioned above for which the rich profit handsomely. Let's add medical costs in there too since they benefit quite handsomely from neither them nor their family members being exposed to infectious diseases.

[Ichingcarpenter]

22. Do Soak The Rich

By: masaccio Sunday October 12, 2014 11:26 am



Don’t Soak The Rich is the headline of an op-ed in the New York Times, written by Edward D. Kleinbard, a professor of law and business at the University of Southern California. In a similar vein, Vox ran an post by Cathie Jo Martin, professor of Political Science at Boston University and a doctoral student at Harvard, Alexander Hertel-Fernandez. Both explain that we shouldn’t impose higher taxes on the filthy rich. Instead, we should tax the hell out of the middle class to pay for programs that benefit the poor. That will solve inequality, these writers say, without disturbing our lords and masters. As Martin and Hertel-Fernandez put it, if you have progressive taxation, you get backlash from the rich and powerful who use their political power to find loopholes and lobby to create new loopholes. They don’t seem to notice that there is enormous anger in the middle of the income distribution about programs that benefit the poorest, anger that the elites use to protect themselves from higher taxes. Mike Konczal and Marshall Steinbaum dismember the Vox post in detail.

Here’s how Kleinbard phrases the tax issue:

It turns out that progressive fiscal outcomes do not require particularly progressive tax systems — just big ones, to support substantial government investment and insurance programs.
…
The better response to income disparity, then, is not to tax the rich more, but to boost revenue over all so that government can invest more, and offer higher quality social insurance programs.

Kleinbard isn’t relying on the arguments of Modern Money Theory to make his case: he says the government needs revenues to support the spending programs he favors. He doesn’t want to soak the rich, so he intends that increased revenues come from the middle of the income distribution. That leaves us with the bizarre notion that a nation that is willing to cut food stamps for the poorest part of the population will happily pay more taxes to fund some other programs that benefits the poor. It’s an astonishing argument.

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security, among others, and have a much lower impact on the upper income people who don’t consume as much, and whose consumption of things like lobbying for tax cuts and other legislative favors is not covered. It also leaves untouched their massive increases in unrealized capital gains, which increases their future income and their ability to obtain legislative favors and dominate the rest of us.

Neither of these two articles explains why we shouldn’t raise taxes on the filthy rich. There’s a hint that it wouldn’t be fair to raise taxes on the filthy rich. Kleinbard writes “A chief executive who earns 200 times as much as her typical employee does not get 200 times the benefit from our investments in highways.” That’s true. She gets a lot more benefit than 200 times. Without those highways, she doesn’t have a job. That applies to the entire oligarchy.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why. They claim that “Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.” The revenue part most likely isn’t true, as we learn from a fascinating paper from Piketty, Saez and Stantcheva. Here’s a discussion of the paper. Neither of the two articles mentions it.

Piketty describes the paper in Capital in the Twenty-First Century.

We found that the elasticity of executive pay is greater with respect to “luck” (that is, variations in earnings that cannot have been due to executive talent, because, for instance, other firms in the same sector did equally well) than with respect to “talent” (variations not explained by sector variables). … Furthermore, we found that elasticity with respect to luck – broadly speaking, the ability of executives to obtain raises not clearly justified by economic performance – was higher in countries where the top marginal tax rate was lower. 512.

That’s econ speak for “the rich get richer at the expense of the poorer”, which is a good reason to raise marginal tax rates immediately. But there’s another and deeper reason. The entire problem facing the US and other advanced countries is that the rich are seceding from the rest of us. They have so much money, and so much power, that they are free to strangle the economy in support of their desire for more money and power. That needs to end.

Neither Kleinbard nor Martin and Hertel-Fernandez are willing to talk about raw power. They apparently think the current distribution of wealth and income is natural and justified. It is neither. It has become an instrument of oppression for the lower class, and is sucking the life out of the middle class. The sooner it ends, the better for all of us, even if it makes the filthy rich sad.



http://my.firedoglake.com/blog/2014/10/12/do-soak-the-rich/

[Recursion]

24. Well, I've liked every European country I've lived in

I suspect that underlying goal of these writers is to impose a value-added tax, a tax on consumption used in Europe. VAT taxes are highly regressive: they increases taxes at the bottom of the income scale, low-income people who currently don’t pay income taxes (but do pay FICA and loads of state taxes already), and people on Social Security

And European countries (you know, the ones most of us keep saying we want the US to act more like) rely on them heavily.

Martin and Hertel-Fernandez claim that we can’t raise enough from the rich, but they don’t say why.

I'm not sure they're saying progressive systems can't raise enough revenue, just that as an empirical point they don't.

[Fumesucker]

29. I think most of us have the idea that a VAT will just be used to fund more and bigger wars

America is absolutely addicted to war and if you give it more money that's precisely where the money will go.

/There's a hole in Daddy's arm where all the money goes/

[Ichingcarpenter]

35. Why are you promoting them besides their anti Piketty agenda

Was this an intellectual exercise?

[Recursion]

36. I've been pro-VAT for a while, on the grounds that it works well in Europe

I'm only halfway through Piketty so I can't comment on that. And, like I said, I'm suspicious that France isn't in their dataset.

Was this an intellectual exercise?

It's a post on a discussion forum. I thought the article was worth discussing.

[JaneyVee]

28. Of course we should tax the rich.

Difference is, those countries aren't in decades long wars. And the middle class and poor fight our wars, so the rich need to sacrifice more. After all, they have more to lose.

[rogerashton]

30. Do not overlook the more regressive federal tax in the US

and that is the social security "contribution," which funds a major aspect of our "welfare state." Marginal rate on top incomes: zero.

[pampango]

31. It would appear from this that the strength of the safety net is more relevant than how it is funded

In a more perfect world, which all liberals should be working towards, the safety net would be funded through progressive taxes, but we should not delay strengthening the safety net pending a perfect funding system.

Our FICA tax is similar to the VAT in the sense that it is regressive but funds an effective safety net program. Both taxes, while regressive, generate a sense of middle class ownership of the resulting safety net they fund so that it is more difficult for the 1% to attack.

Of course, unions are strong and pervasive in Sweden unlike in the US. That undoubtedly plays a huge role in producing a more equal distribution of income, so tax policy is not the only factor. In addition to progressive labor policy, liberal trade policy, effective regulatory policy and liberal social laws contribute to more equality.

Thanks for the thread, Recursion. Thought provoking.

[think]

32. Sweden's wages & worker's right aren't considered in the comparison. Nor is military spending

So cut the US military budget to that of Sweden's based on GDP and then allow 70% of US workers to be unionized and negotiate their contracts and then this comparison might be worth considering....

http://en.wikipedia.org/wiki/Swedish_labour_movement

http://work.sweden.se/living-in-sweden/workers-rights-and-unions/

Swedes earn highest wages in Europe: study

Workers in Sweden earn the highest average hourly wage in the European Union, according to a new study from Germany.
Swedes earned €41.90 ($53.90) per hour on average last year, or roughly 350 kronor. This compares to an average of €31 in Germany, according to a recent report from Germany's official statistics agency, Statisches Bundesamt.

The lowest wages among the 27 member states of the European Union were found in Bulgaria, where workers received an average of €3.70 per hour, according to the report...


http://www.thelocal.se/20130402/47094

https://www.google.com/search?q=sweden+military+budget&rlz=1C1CHWA_enUS597US597&oq=sweden+military+budget&aqs=chrome..69i57j0l2.6935j0j4&sourceid=chrome&es_sm=122&ie=UTF-8

[mmonk]

33. That doesn't tell the whole story.

They have wage and retirement protection and universal insurance and labor normally has a say. And though they say VAT taxes are regressive , they are business taxes while their economies still run on both supply and demand (which still can be a check on inflation).

[librechik]

37. what do you do when the inequality is pronounced? What emergency means would you take

Last edited Tue Oct 14, 2014, 01:12 PM - Edit history (1)

to catch up? The rich in the US have not paid their share for years. They have changed laws to slide more and more of the tax burden off themselves and onto others. THEY HAVE COMMITTED CRIMES which have gone unpunished due to their meddling with the laws. Who has the authority here to challenge them? They have arranged to be the Powers That Be themselves. They investigate themselves, they exonerate themselves.