Sweden is again surfacing as the idolized role model for the United States to follow. The latest contribution, from the New York Times on December 27, is clearly aimed at providing welfare statists in Congress – from Republicans to Democrats – with arguments to back up new entitlement programs.
Unfortunately for both the Times and congressional welfare-statists, the article is a journalistic version of Swiss cheese: bland taste and full of holes.
The assertion is that economic innovation happens only where a large welfare state gives people a safety net they can rely on. When people fail in their entrepreneurial endeavor, they can supposedly rely on government to cushion the fall.
That, says the Times, fosters innovation and risk taking.
As mentioned, their argument is full of holes. One of them is the fact that US entrepreneurs file twice as many patents applications per capita as Swedes do.
The main line of the Times article’s welfare-state propagation is captured in the following quote:
In much of the world, people whose livelihoods depend on paychecks are increasingly anxious about a potential wave of unemployment threatened by automation. … Now, the robots are coming to finish off the humans. But such talk has little currency in Sweden or its Scandinavian neighbors, where unions are powerful, government support is abundant, and trust between employers and employees runs deep. Here, robots are just another way to make companies more efficient. As employers prosper, workers have consistently gained a proportionate slice of the spoils — a stark contrast to the United States and Britain, where wages have stagnated even while corporate profits have soared.
For some reason, the mining industry represents the entire the Swedish economy, as if the wages earned there could represent Sweden in a comparison to the United States. However, this is like comparing a job in the Wyoming coal mines, which pays north of $75,000 per year, to the average $52,231 that a private-sector job pays in California, concluding that Wyomingites are some 50 percent wealthier than Californians.
Not only does the Times misrepresent wage levels, they take a similarly biased approach to the government’s role in the economy. Formally speaking, Sweden does have a vast safety net, courtesy of tax-paid entitlements, yet despite this supposedly comprehensive safety net, the official Swedish poverty rate in 2015 was 16.3 percent. That year, 13.5 percent of the US population qualified as poor.
With a vast welfare state, Sweden should be able to redistribute income to a point where poverty no longer exists. According to income-distribution data from the OECD, the Swedish welfare state eliminates 39 percent of the income differences between citizens; in the United States the same number is 23 percent. Yet even when the welfare state has worked its way through the economy, Swedes are poorer than Americans.
In other words, the “government support” that the Times has such appreciation for cannot even elevate Swedes to the same relative standard of living as Americans. But that is not all: to maintain that “government support,” Swedes make their low-income families pay dearly for whatever they get.
According to Eurostat, the official statistics agency of the European Union, low-income households in Sweden pay much higher taxes than those in the United States — and the differences are striking. In 2015, a family with two working adults and two children, earning the average working wage, paid 23.9 percent in personal-income and social-security taxes in Sweden; a US family under similar circumstances paid 20.8 percent.
The net-tax earnings are also fairly equal: 70,725 euros in Sweden and 72,108 euros in the United States.
To make it to that level, the Swedish family had to receive 2,887 euros in cash benefits from government.
Still, the disposable income ends up fairly similar; if we ignore the higher cost of living and very high value-added taxes on everything in Sweden (including services such as bus rides), we could in fact imagine that the Times might be on to something.
However, that impression quickly fades away once we look at lower-income families. If only one parent works in the our two-parent, two-children family, the total taxation on the Swedish family remains almost the same at 23.2 percent. On the American side, however, income taxes claim only 13.9 percent of the income. If we also adjust for the cash benefits that the Swedish family gets, the American family now has 17 percent more money to spend. And that is, again, before we factor in cost of living.
The further down the income ladder we go, the better life is in the United States compared to Sweden. For a single parent with two kids and an income at 67 percent of the average wage, Sweden comes across as a penal colony for taxpayers:
- the Swedish parent pays 20.2 percent of his wages in income and social security taxes, compared to 3.8 percent for his American counterpart;
- adjusted for taxes and cash benefits, the American parent has 22 percent more money to spend – again, before we adjust for cost of living;
- Swedes pay about 50 percent more per capita in taxes than Americans do.
But surely the Swedes get a lot for their high taxes, don’t they?
Sadly, no. As much as we often complain about inefficiencies and waste in government here in the United States, that is nothing to what the Swedes have to put up with. As explained in a classic study by three economists from the European Central Bank — succinctly summarized in a report from the Fraser Institute — for every dollar’s worth of economic activity that Americans get from their government, Swedes only get 57 cents.
In other words, Swedes pay $1.50 in taxes for every $1.00 we pay, but for every $1.00 we get from government in the form of services and benefits, Swedes only get 57 cents.
Does this seem like a deal we would like to copy?
Made available by the American Institute for Economic Research. Visit their website at https://www.aier.org.