Admin note:
SEPARATE! will take a break to complete a book with the working title “Think Right or Wrong, not Left or Right: A 21st Century Voter Guide”. Tentative release early summer 2020. Longtime subscribers may recognize the theme from past articles here and here. We’ll provide occasional updates along the way and SEPARATE! will be back as soon as the media appearances and book signing frenzy have calmed down.
Over the past few years, the so-called Scandinavian welfare state model has been a hot topic in political circles this side of the pond. Should we, as many on the left argue, adopt the more comprehensive “safety net” of the Nordic countries with the government guaranteeing our “welfare” from cradle to grave, or should we, as some proponents on the political right suggest, preserve and improve upon the American model based on some notion of individual freedom and responsibility.
Here at SEPARATE! we’re extremists for the individualist position so we obviously reject the Scandinavian system as we’ve previously explained. But we thought a comparison may be instructive for those who are on the fence about the future direction of the land of the free and the home of the brave. We’ve crunched some Swedish and U.S. numbers to try to concretize the differences between an average American and Swede—John and Sven—when it comes to how their hard-earned money are being spent.
In our example, John’s and Sven’s employers each have $100,000 to spend on them (Sven is represented by the IKEA colored Swedish flag).
In both countries, the employers spend a chunk of this change in benefits and taxes on John and Sven that they never see on their paychecks:
A U.S. employer pays on average $11.38/hour in benefits (health insurance, other insurance, vacation and holiday pay, 401(k) match, etc.), and 7.65% of the total salary in Social Security and Medicare taxes to the government. His Swedish counterpart pays 31.42%.
This brings us to the total salary that John and Sven see as the top line on their paychecks. So far it looks like Sven is better off but we’re far from done yet:
A U.S. employee pays the same 7.65% of the total salary in Social Security and Medicare taxes to the government as his employer, about $6,015 in health benefits, and an average of $6,840 in 401(k). The Swedish employee pays 7% Social Security up to about $50,000.
After these deductions Sven appears to be way ahead of John. But don’t pull up stakes just yet and move to Sweden, because here comes the taxes:
We’ve assumed that John is filing U.S. federal taxes jointly with his spouse, claims no child tax credits, and takes the 401(k) and standard tax deductions, resulting in a tax bill of $5,620[1]. Furthermore, we’ve assumed the 4.63% state income tax rate in our home state Colorado as the national average, resulting in a state tax bill of $2,966[2].
Sven is getting a small tax deduction bringing his federal tax bill to $4,335[3], and in addition he pays a whopping 32% in county and municipal taxes for a total of $22,631[4].
Even after this hefty tax bill, Sven is slightly ahead. But wait, there’s more:
Assuming that both the American and the Swede is paying sales taxes on 50% of the income before other taxes, John is paying $1,541 throughout the year at an average of 7%, and Sven $5,703 at the Swedish VAT (value added tax) rate of 25%. Average property taxes in the U.S. are $2,279 and on the average valued Swedish home $3,413[5].
In the end, John comes out about $3,700 ahead of Sven.
Obviously, this doesn’t tell the full story. It says nothing about the quality of the products and services that John and Sven get for their money. For example, due to health-care rationing, a Swede has to wait longer for many diagnostic and medical procedures than an American. Nor does it capture the wide range of state and local income, property and sales tax rates in the U.S. If you’re a resident of California or New York, you’re probably worse off than your Swedish counterpart.
Thirdly, both countries have a plethora of other taxes and government fees. For example, gasoline is twice as expensive in Sweden as the U.S. average, most of the difference being taxes.
Finally, it doesn’t take into account different household types in terms of taxation (tax rates and tax credits) and wealth transfers (see a recent Wall Street Journal OpEd by Phil Gramm and John F. Early for more on the latter).
However you slice and dice the numbers, the difference between the U.S. and Sweden is not as big as you’d think from listening to the political discourse. On the contrary, the U.S. is in many if not most respects already a Scandinavian style welfare state. The disposable income after the government’s take is frighteningly small in both countries as a share of the total cost the employer spends on an employee:
The biggest difference is that a large portion of the benefits that are tax financed in Sweden are managed by employers in the U.S (in orange). But U.S. benefits are highly controlled by the government through the tax code (health benefits are tax deductible for employers and 401(k) savings for employees) and massive regulations. In reality, we’re facing about the same government meddling in our affairs in both countries.
For champions of individualism and individual rights it is not enough to argue against more Scandinavian style welfare statist interference in our lives. Instead, we need to play offense advocating for rolling back the statist programs and regulations we already have in place. Advocate for getting both the government and employers out of benefits by revising the tax code and privatizing and deregulating Social Security and Medicare/Medicaid. This will empower individuals to make their own retirement and healthcare choices in the marketplace. In other words, advocate for reducing the red and orange line items above to put you in charge of your life and more green in your wallet.
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[1] (($70,905 – $6,850 – $24,400) – $19,400) * 22% + ($19,400 – $9,700) * 12% = $5,620
[2] ($70,905 – $6,850) * 4.63% = $2,966
[3] (($72,592 – $1,870) – $67,540) * 25% + (67,540 – $49,870) * 22% = $4,335
[4] ($72,592 – $1,870) * 32% = $22,631
[5] 2017: SEK 3034,000, SEK/USD 10/1 exchange rate * 75% * 1.5% = $3,413
