Progressive tax - US versus Sweden

Funny how the word 'progressive' usually has good connotations. Not when it comes to tax (unless you are a socialist). NCPA reports;

U.S. Tax Code Is One of World's Most Progressive

The United States has one of the most progressive tax systems in the world, and has become much more progressive in the past 30 years, says Richard Rahn, a senior fellow with the Cato Institute.

* The top 1 percent of taxpayers pay 38 percent of all the income taxes despite having just 20 percent of the income.
* The top 10 percent of taxpayers pay 70 percent of the income tax while having just 46 percent of the income.
* At the other end, the bottom 50 percent of taxpayers pay just 2.7 percent of the income tax while having 13 percent of the income.

This has resulted in a situation in which a relatively small minority of taxpayers pay the bulk of the taxes, while most American pay little or no income tax. This is causing an increasing disconnect between benefits from government and what most citizens pay for. One result is a greater polarization in the political realm where a majority of citizens increasingly demand more government benefits for which they want others to pay.

The Swedes were on this same destructive path, but they reversed course over the last couple of decades and made their tax system far less progressive, even though their tax rates at all levels are above most of those in the United States. The result has been a tempering of demand for new government services as people at all income levels realize they will be the ones paying for those services and not some mythical "rich" person. The side benefit is that Sweden, as a result of tax and other reforms, now has one of the highest economic growth rates in the world, says Rahn.

Source: Richard W. Rahn, "Tax Inequity," Washington Times, April 11,2011.

And additional information from Sweden;

Sweden may need to push through tax cuts at every budget if it is to reduce unemployment further, Finance Minister Anders Borg said.

“We have a lot of work to do to secure full employment,” Borg said at an event today arranged by Svenska Handelsbanken AB (SHBA) in Stockholm. “It will require that we make changes to taxes and spending in practically every budget going forward if we are to come down to unemployment rates in line with the best European countries.”

The government yesterday raised its economic growth forecasts for 2012 and 2013 and predicted budget surpluses, allowing it to cut taxes when most other European countries are grappling with austerity measures. The fastest-growing European economy will expand 4.6 percent this year, 3.8 percent in 2012 and 3.6 percent the following year, Borg said yesterday.

The krona strengthened 0.2 percent against the euro to 9.0224 at 9:40 a.m. in Stockholm. It jumped 0.9 percent yesterday following the government’s forecasts.

Unemployment fell to 7.9 percent in February from 8.2 percent the previous month, Statistics Sweden said on March 17, citing non-seasonally adjusted figures.

My conclusion?

A lot less government is still preferable BUT where it exists, paying for it should be as equitable as possible. Nothing would persuade me that paying an average tax rate of 57.77% was a good thing. Those economic growth rates in Sweden are similar to what NZ had in the mid 2000s without paying exorbitant (relatively speaking) tax rates. And the US has had similar rates under similarly progressive regimes as described above. There are far more factors affecting economic growth than tax rates alone.

(Out of interest, in NZ, based on income tax alone;

* The top 2 percent of taxpayers pay 17 percent of all the income taxes despite having just 20 percent of the income.
* The top 12 percent of taxpayers pay 49 percent of the income tax while having just 46 percent of the income.
* At the other end, the bottom 45 percent of taxpayers pay just 8 percent of the income tax.)