The High Cost of Scandinavian “Socialism”

A lifelong socialist, Bernie Sanders decided to do some rebranding during his 2016 presidential campaign. No longer was he a socialist, he’s now a “democratic-socialist” (which I suppose sounds better).  “When I talk about democratic socialism, I’m not looking at Venezuela. I’m not looking at Cuba. I’m looking at countries like Denmark and Sweden.” Bernie declared during the presidential primaries.

I’ll ignore the fact that Bernie has consistently praised Cuba in the past, and in 2011 wrote that “These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina,” and turn my attention towards his new model for socialism: Scandinavia.

Scandinavian “Socialism”: The Offerings

It must first be clarified that Scandinavian countries (Sweden, Denmark, and Norway) are not socialist. They are capitalist countries that impose excessive levels of taxation on their citizens to fund a wide array of social programs. Those programs include:

  • “Free” government funded healthcare through single-payer healthcare systems
  • Generous government funded maternal and paternal leave
  • Heavily subsidized higher education, free of tuition to all students (and in Norway, to international students as well)
  • Generous paid sick leave

And all these programs are extremely popular when you poll American voters on them – but that’s meaningless. Anything that appears “free” polls extremely well – until the public realizes that they have to pony up for “free.”

Scandinavian “Socialism”: The Cost

The large welfare states of Scandinavia are not without their cost.  In 2017, all three countries had levels of taxation exceeding half of every dollar earned. Taxes as a percent of GDP are:

  • 50.7%  in Sweden
  • 53.5%  in Denmark
  • 54.7% in Norway

For reference, in the U.S. taxes at all levels of government averaged 26% of GDP in 2016 (and have since been cut).  

Listen to Bernie’s rhetoric and you’d get the impression that it’s “millionaires and billionaires” ponying up most of those funds – but they aren’t in Scandinavia. While the Tax Foundation found that in 2017 the top 10% of American households paid 70.6% of the taxes, there is no Robin Hood in Scandinavia.

In America, an earner isn’t subject to the top tax bracket of 37% until they earn over $500,000. While an American would need to earn eight times the average income to be subject to our top tax bracket, the figures are only 1.5 times average income in Sweden, 1.6 in Norway, and 1.3 in Denmark (source: pages 30-31).

So, how would America’s tax system look if it were more like Scandinavia’s?

  • If the U.S. tax code was as flat as Denmark’s, someone earning roughly $70,000 would face a top marginal tax rate of 46.3% (source: page 30). That’s simply the first layer of taxation, as all Scandinavian countries have a 25% value-added tax on purchases (the equivalent of a sales tax).
  • Even after accounting for the dollar value of transfer payments and other government benefits, a single-income couple earning the average wage with two children will pay an average personal income tax rate of 22% in the Nordic countries (counting government transfers as a negative tax), as compared to a rate of 14.2% in the United States. Across all family types, the average American family earning the average wage would pay $2,000-$5,000 more in taxes each year (net of the value of any transfer payments) than a Nordic family. Note that this comparison is of Nordic countries (Scandinavia plus Finland and Iceland). (Source: page 31).

And despite all the “freebies” in Scandinavia, Americans consume much more. According to an analysis of OECD consumption data by the White House (source: page 36), average consumption per person is:

  • 31% lower in Denmark than in the United States
  • 32% lower in Sweden than in the United States
  • 18% lower in Norway than in the United States

And on that note, it should come to little surprise that….

Scandinavians Perform Better in America Than in Scandinavia

The success of Scandinavian economies is despite their generous tax-and-spend policies, not because of them. You can thank the Scandinavian work ethic for their success – not the laws of economics being suspended.

There are over 10 million Americans with Scandinavian ancestry (most of which are the descendants of immigrants), and they far economically outperform their counterparts across the Atlantic.

There is, unfortunately, a lack of global household income data, and thus, the most recent information available is from a 2013 Gallup study of global household incomes. They found the median household incomes, purchasing power adjusted to be the following in 2012:

  • Norway: $51,489
  • Sweden: $50,514
  • Denmark: $44,360

The figures are the following median incomes for households of Americans with Scandinavian ancestry in 2012 are as follows:

  • Norwegian American $62,155 (21% higher)
  • Swedish American $62,295 (23% higher)
  • Danish American $63,630 (43% higher)

Additionally, the Census listed a group identifying themselves as “Scandinavian Americans,” who earned a median household income of $67,421 in 2012. The median household income of all Americans in 2012 was $51,371.

And the real kicker? These figures are not adjusted for differences in taxation. Not only do Scandinavian Americans far outperform Scandinavians economically, but they also get to keep a larger chunk of a larger pie.

 

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