In recent years, I have spoken to many young adults, most of whom are college seniors. Some approach me after my spiel and ask me why I bother to discuss marketing or investment issues? What we need, they say, is democratic socialism. Keep in mind, many of these earnest young people are business majors.
The term democratic socialism began to get some traction when Senator Bernie Sanders of Vermont ran for president in 2016. Bernie was clever enough to not throw the market system totally out. What he suggested was that the U.S emulate Denmark and other Scandinavian countries and have a mixed economy rather than a relatively free market model. Education and health care and some old age benefits are strong in these countries. He also made some scathing remarks about Wall Street excesses, some of which even I agreed with.
It sounds great on the surface, but have you ever investigated what really happens in Denmark, Norway and Sweden? Let’s look at some facts.
Personal income taxes in Scandinavia are much higher than in the U.S. Denmark’s top tier pay 55.9%, Norway 39.6% and Sweden 52.4%. Why is Norway’s so much lower than the other two democratic socialist paradises? Well, to me they got lucky but were also VERY smart. When the North Sea oil was developed decades ago, Norway set up a permanent fund for both education and healthcare for their citizenry. Then they did something brave and ingenious in my view. The oil bonanza was largely invested in global index funds that excluded Norwegian securities. They realized that they were a small nation so looked outside of their home to invest the gigantic windfall (can you imagine Wall Street’s reaction if the US tried even a modified version of Norway’s approach?).
The top income tax rate in the US is technically just over 40% but virtually no one pays it. The super rich pay capital gain taxes at a much lower rate and a handle of serious players use the carried interest loophole to lessen their tax burden. Inheritance taxes in the US largely exist in name only as the well-heeled and genuinely rich place their funds in trusts that work around a death tax. Also, remember that while all US workers’ pay Social Security taxes, some 47-48% pay no federal income tax at all. Lower income Scandinavian citizens still pay but not at the confiscatory top rates mentioned above.
Also, these nations have a Value Added Tax of 25% on most purchases which is, in essence, a national sales tax. We do not have a national sales tax, and several states such as New Hampshire, Delaware, Montana, and Oregon do not have one at all. Sales taxes are regressive and are felt the most by the lower income groups, so the Value Added Tax does to strike me as very socialistic.
To sum up, the free education and healthcare provided in these northern European countries is not free. The tax burden on the lower and middle class is much higher than on Americans and on their big earners as well.
Do Americans really want democratic socialism? Mayor Mandami in New York city shrewdly suggested a special tax on non-US citizens having vacation residences in his city. This would raise some revenue but not effect citizens at all.
Right now, many Americans earning $150,000 or so may only pay 11-15% in Federal Income Taxes. To emulate the Scandinavian model, their taxes would at least double plus a national sales tax (value added) would also have to be employed to cover the social benefits that Denmark, Sweden and Norway enjoy.
Also, can you imagine the army of accountants, tax lawyers and lobbyists for a variety of groups that would descend on Washington if Congress tried to implement a Scandinavian solution? I agree that income inequality is out whack, but authentic tax reform is what is needed.
A few Congressional democrats have suggested busting the trusts that the well to do have and all inheritances would be taxed at normal tax rates. That would face tough sledding in Congress but such imaginative ideas need to be considered in some form.
If you would like to contact Don Cole directly, you can reach him at doncolemedia@gmail.com or leave a message on the blog.
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