Posts tagged with: Value added tax

Acton’s director of research Samuel Gregg has a piece over at The American Spectator that may surprise big government liberals. (We know you read this blog.) In “Free Market Sweden, Social Democratic America,” he lays out the history of Sweden’s social democracy — its nature and its effects on the country’s economy — and then draws lessons for the United States. The Scandinavian country isn’t quite the pinko nanny state Americans like to look down upon, and we’ve missed their reforms of the last two decades.

Gregg explains that Sweden’s dramatic mid-century expansions of government were portrayed as rooted in the traditional values of the homeland, so Social Democrat governments escaped the soft-Marxism tag, and were able to do pretty much as they pleased. Social programs were also characterized as coverage of universal rights, to be imposed by general taxation. Then came

the decision of governments in the 1970s to hasten Sweden’s long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and — of course — increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that “In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages inSweden increased by only one percentage point.” So much for helping “the workers.”

Economic reality was painful, but Sweden responded, and began to unravel some of its “progress,” reducing the public sector and even allowing private retirement savings. Unemployment was still high though — about 20 percent — in large part because the country’s tax structure encouraged joblessness.

But with a non-Social Democrat coalition government’s election in 2006, Sweden’s reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished — yes, that’s right, abolished — inheritance taxes.

But liberalization wasn’t limited to taxation. Sweden’s new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world’s most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

By 2010, Sweden’s public debt had fallen dramatically and its rate of economic growth was 5.5 percent. Compare that with America’s 2.7 percent growth in 2010, and just try to restrain your jealous impulses.

Gregg cautions that Sweden’s economy is still hampered the Social Democrats’ legacy. High minimum wages keep a full quarter of the country’s youth unemployed, and a carbon tithe to the religion of environmentalism retards growth, but

It’s surely paradoxical — and tragic — that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.

Full article here.

I’d like to thank Gideon Strauss of the Center for Public Justice and Jordan Ballor of the Acton Institute for their gracious and thoughtful contributions to the discussion of “A Call for Intergenerational Justice” at last night’s Open Mic Night in Grand Rapids. It was an excellent example of the kind of spirited and good natured dialogue we need in confronting the problems of poverty and the national debt.

Earlier this week I pointed out that there was indeed a lot in the “Call” to be recommended. It takes the question of the debt seriously and makes hard recommendations involving both cuts to federal spending and tax increases. Both will be necessary tools for addressing this issue.

My problem with “A Call for Intergenerational Justice” is that I don’t believe these two tools, while both necessary, are sufficient to address the crisis alone. In the short term cuts in federal spending will affect many adversely and tax increases will place an additional burden on an economy still struggling to emerge out of a recession.

The precarious place we now find ourselves in has many causes. Government spending that has grown to unsustainable levels and tax cuts funded by borrowing (Which are, in the long term, not genuine tax cuts at all) have both played a role. But what has fueled the deficit most in recent years is the recession itself and the tragically misguided attempts by the federal government to lift us out of it.

What we desperately need is a third tool, economic liberalization, which would promote economic growth. Here are four broad principals of economic liberalization which, if they had been included, would have made “A Call for Intergenerational Justice” a document not just worth thoughtful consideration and debate but something worth getting behind:

  1. We need to open more markets to American goods and services and open them more widely.
  2. We need to lower barriers (in the form of regulation) and cost (in the form of taxation) to doing business and creating jobs domestically.
  3. We need to lower regulatory barriers for entrepreneurs to enter the marketplace by streamlining or cutting red tape.
  4. We need to look seriously at intellectual property law and strike a better balance between rewarding innovation and promoting competition.