November 10, 2015
By Tim Worstall
That Bernie Sanders would like to have Scandinavian style socialism for the United States doesn’t bother me in the slightest. I might refer to the system those countries have as social democracy, not socialism, but that’s just me being accurate in my use of language, not something that operates as a refutation of the basic idea. And it has to be said that those Nordics are pretty nice places to live. But it is necessary for people to understand how they do operate.
The most important part of how they operate being that they have vastly more regressive tax systems than the US does. Not just a little bit more regressive, the US has the most progressive tax system, by a long way, of any of the rich large nations. This is pretty much the same statement as you can’t have that Scandinavian socialism without taxing the middle classes. Simply because there’s no other group in society with enough money, in aggregate, to finance that sort of a welfare state.
Sorry, seriously, the rich just don’t have that much money. At minimum you’d need to raise 10% of GDP, over and above current tax rates, to be able to finance all that social welfare. This can be done of course: but it can’t be done by just taxing the rich. Yes, the American rich do get a very large part of all income. 20% and more of all income in fact. But if you’re going to try and get 10% of GDP from that group then you need to take half of all of that from them. No, this doesn’t mean marginal tax rates of 50% or whatever. It means average tax rates of 50%. And that’s on top of the taxes that they’re already paying. And whatever else you might think about soaking the rich they’re simply not going to sit there and pay the taxes they currently do, plus another half of all their income. They’ll change their behaviour, thus there just won’t be that amount to tax over the long run.
Read the full article at Forbes.com: Memo To Bernie Sanders: You Can't Have Scandinavian Socialism Without Taxing The Middle Class