Art Woolf

Burlington Free Press

Are VT taxes high? Art Woolf counts the ways

Vermont is one of the bluest states in the nation, exemplified by our junior senator who proudly characterizes himself a democratic socialist.

And it’s not just Bernie Sanders and not just Vermont Progressives who see socialism in a positive light. According to surveys, not since the 1930s have people been so favorably inclined toward socialism, especially young people.

I doubt that young people, or even Sen. Sanders, support true socialism, with the government owning most of the key industries in the economy. Most of the world has moved away from that concept, and not just the countries that used to be behind the Iron Curtain. Over the last three decades, privatization, deregulation and market reforms have been the order of the day in Western Europe, Latin America and Asia.

Vermont’s Progressive Party, and many young people who claim to support socialism, most likely think of the democratic socialism of the Nordic countries. That is, a government that does not own the productive resources in an economy, but one that provides a strong safety net for the poor and generous social benefits for the middle class.

Sweden, Denmark, Norway, and other northern European nations do provide more social and economic benefits to their citizens than the U.S. Free childcare. Paid parental leave for mothers and fathers. Extended sick leave. Generous unemployment benefits. Shorter work hours and longer vacations. Universal healthcare. Free college tuition. Much higher retirement benefits than in the U.S.

How do those countries pay for all those benefits?

Start with consumption taxes. Most European countries don’t levy sales taxes. But they do have national value added taxes, which are similar to sales taxes but are less transparent. In the Nordic countries they average a little over 20 percent, three times Vermont’s sales tax.

Denmark has a 100 percent tax on cars, which means a $30,000 Toyota Camry costs $60,000. Filling up the car is expensive, with Nordic gasoline taxes over $3.00 per gallon, putting gas prices at about $7.00 per gallon.

The most important source of funds to pay for the Nordic welfare state is by taxing everyone’s income — a lot. In the U.S., the average family faces about a 15 percent income tax rate. In the Nordic countries, income taxes are twice that.

The highest U.S. income tax rate is 40 percent, and you have to earn about eight times the average salary, or about $500,000 to pay that much. The top income tax rates are 47 percent in Norway, 56 percent in Denmark, and 60 percent in Sweden. Those rates hit families earning about one and a half times the median family income. That means a family earning about $80,000 pays a tax rate higher than a U.S. family earning a half million dollars.

Essentially, income taxes are about half your income if you earn somewhat more than average. Tax rates that high, and paid by a lot of families, bring in a lot of money.

Basically, everyone gets generous benefits, and everyone pays for them. The Nordic countries have learned that the social welfare state that we think of when we think of democratic socialism can only be funded by a growing, competitive economy. You can’t get enough taxes to support those benefits by only taxing corporations or the rich. Trying to squeeze that amount of taxes from those groups will inflict long-run damage to the economy.

Could the U.S. adopt the Nordic model? Perhaps, but it’s worth remembering that small, homogenous countries are different from large, heterogeneous ones like the U.S. The Nordic countries are small — Sweden has only 10 million people, and Norway and Denmark half that. And they are old societies where people have a lot more trust in each other and in the government than we do in the U.S.

Politicians and others who envy the benefits people in those countries receive should remember that the benefits of democratic socialism have a cost, and that cost is borne by everyone, not just the rich.



Art Woolf is associate professor of economics at UVM.