Sweden is often referred to as an economic nirvana, where government-sponsored social support systems coexist successfully with the free market, albeit at the expense of high taxes. We’ve talked about this miracle before, and once again the Swedes are realizing who actually creates the jobs that create the wealth that then create the funding for those lavish programs. Business. And now they’re doing something to further support business in order to keep the programs funded, and politicians from both sides of the aisle in the U.S. could learn something from it.
With the economy struggling, at least some people are urging a pro-growth tax cut. Too bad they live in Stockholm. As a recent headline in Agence France-Presse put it: "Sweden Announces Income Tax Cuts to Boost Jobs." The government is planning to cut business taxes and the personal income and payroll tax.
Our Swedish friends understand the impact of taxes on business.
"The corporate tax is one of the taxes which large companies really study when they plan to set up business somewhere," says Jan Björklund, leader of the country’s Liberal Party, in promoting the tax cut plan. The corporate tax reduction will bring the Swedish rate down to 26.3% from 28%, continuing its fall from a high of 57% in 1987. This means that Swedes will soon have a corporate tax rate one-third lower than the U.S. average of 39.5% (the 35% federal rate plus the state average).
A "Liberal Party" supporting tax cuts. Imagine that. But the facts speak for themselves, at least in Sweden.
Maria Rannka, president of the Swedish think tank Timbro, has reported that entrepreneurship had become such an alien concept that more than half of Sweden’s 50 largest companies were founded before World War I and only two after 1970 — the period when taxes and social welfare programs proliferated. Now, however, Sweden is discovering that it must cut taxes to compete with Ireland, Eastern Europe and fast-growing Asia. Three years ago Sweden eliminated its inheritance tax. The U.S. death tax rate is still 45%.
But politicos in the U.S., from both parties, continue to complain that U.S. companies are "sending jobs overseas"… perhaps it’s the tax rate instead?
John McCain cited Ireland’s low rate in his Friday debate with Barack Obama, who continues to insist that U.S. business is undertaxed. If Mr. Obama wins in November, maybe his first foreign trip should be to Stockholm. He could use the tax tutorial.