VATs are similar to sales taxes in that they aim to tax consumption. In addition to income taxes and social security contributions, all Scandinavian countries collect a significant amount of revenue from Value-Added Taxes (VATs). In addition, the amount of tax revenue raised given a certain tax system depends on the distribution of taxable income. Importantly, the overall progressivity of an income tax depends on the structure of all tax brackets, exemptions, and deductions, not only on the top rate and its threshold. Thus, a comparatively smaller share of taxpayers faces the top rate. In comparison, the United States levies its top personal income tax rate of 43.7 percent (federal and state combined) at 8.5 times the average U.S. Sweden’s top personal tax rate of 52.3 percent applies to all income over 1.1 times the average national income. Norway’s top personal tax rate of 38.2 percent applies to all income over 1.5 times the average Norwegian income. Norway and Sweden have similarly flat income tax systems. income of about $63,000) would be taxed at 55.9 percent. perspective, this means that all income over $82,000 (1.3 times the average U.S. For example, Denmark’s top statutory personal income tax rate of 55.9 percent applies to all income over 1.3 times the average income. Scandinavian countries tend to levy top personal income tax rates on (upper) middle-class earners, not just high-income taxpayers. In fact, the United States’ top personal income tax rate is higher than Norway’s top rate, at 43.7 percent (federal and state combined). However, tax rates are not necessarily the most revealing feature of Scandinavian income tax systems. Denmark’s top statutory personal income tax rate is 55.9 percent, Norway’s is 38.2 percent, and Sweden’s is 52.3 percent. Top personal income tax rates are rather high in Scandinavian countries, except in Norway. Instead, it uses a share of its individual income tax revenue for these programs. Only Denmark does not impose social security contributions to fund its social programs. This compares to 14.6 percent in the U.S. In Norway and Sweden, social security contributions-employer and employee side combined- account for 18.8 percent and 29.2 percent of the total labor costs of a single worker with no children earning an average wage, respectively. In the United States, social security contributions ( payroll taxes) raise revenue of about 6 percent of GDP. Social security contributions are largely flat taxes and tend to be capped.īoth Norway and Sweden levy high social security contributions, raising revenue amounting to approximately 9 percent of GDP in 2021. Social security contributions are levied on wages to fund specific programs and confer an entitlement to receive a (contingent) future social benefit. tax wedge of 28.4 percent and the OECD average of 34.6 percent. The tax wedges of the Scandinavian countries are now higher than the U.S. In 2021, the tax wedge for a single worker with no children earning a nation’s average wage was 35.4 percent in Denmark, 36.0 percent in Norway, and 42.6 percent in Sweden. One way to analyze the level of taxation on wage income is to look at the so-called “ tax wedge,” which shows the difference between an employer’s cost of an employee and the employee’s net disposable income. This compares to 17.5 percent of GDP in individual taxes in the United States. In 2021, Denmark (24.7 percent), Norway (19.7 percent), and Sweden (21.3 percent) all raised a high amount of tax revenue as a percent of GDP from individual taxes, almost exclusively through personal income taxes and social security contributions. So how do Scandinavian countries raise their tax revenues? A first breakdown shows that consumption taxes and social security contributions-both taxes with a very broad base-raise much of the additional revenue needed to fund their large-scale public programs. This compares to a ratio of 24.5 percent in the United States. In 2021, Denmark’s tax-to-GDP ratio was at 46.9 percent, Norway’s at 42.2 percent, and Sweden’s at 42.6 percent. High levels of government spending naturally require high levels of taxation. Scandinavian countries are well known for their broad social safety net and their public funding of services such as universal health care, higher education, parental leave, and child and elderly care.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |