Some week ago week Paul Ryan, chairman of the House of Representatives budget committee, accused President Obama of waging “class warfare” with his proposed taxes on top-earners. Ryan went on to claim that any such attempt to dismantle Bush-era tax breaks is not merely an unwarranted assault on the super-rich, but also amounts to “rotten economics”.
As a Swede, I find such charges particularly absurd. Taxation, under the Swedish model, is viewed as a proportional levy, with higher taxes charged for those who can afford them. This system opposes the twisted logic of libertarian fiscal policies, and serves as a counterweight to the excesses and disparities of unfettered capitalism without stifling growth.
If, to borrow Mr. Ryan’s metaphor, one wishes to know where the economic rot has set in, one need only compare how each fiscal model as fared through the financial tumult of the previous years.
As was widely reported, democratic countries, such as the Scandinavian nations and Germany, were the first Western nations to emerge from the Great Recession. Conversely, the U.S. economy has stagnated as its deficit rises unsustainably, and more of its citizens fall below the poverty line with a fraying social security net to catch them. Three years on, as the global economy lurches towards the precipice once more, it is clear which countries are better positioned to cope. More importantly, it is clear which citizens will be better protected against further pecuniary hardship.
Regarding the inter-class conflict that Ryan and his fellow party members warn against, one can only see the irony in taking advice on peaceableness from the very people who are largely responsible for the partisan acrimony of Capitol Hill. Ryan’s call for a truce between the warring parties is simply another uncompromising battle cry, rooted in a visceral mistrust of any socialist principles. If the furore that followed the unveiling of Obama’s modest healthcare plan is anything to go by, the Swedish fiscal model, and the welfare state it funds, would be lambasted as Communist, Nazi or both.
Not only are Mr. Ryan’s economics suspect and his intentions belligerent, but they are being increasingly contradicted by high-profile members of the very demographic they designed to favour: the millionaires and billionaires.
Perhaps, most notable amongst this growing chorus is Warren Buffet, the archetypal American capitalist. After realizing that that he was paying tax at a rate almost 50% below that of many of his lower-level employees, Buffet pledged to contribute a fairer sum and began petitioning his fellow business elite to follow suit. Subsequently many, from Michael Bloomberg to eBay founder Pierre Omidyar, have done just that, agreeing to hand over a larger proportion of their colossal incomes in tax. A similar campaign has sprung up amongst the European elite, with the CEO of Ferrari and French heiress Liliane Bettencourt, adding their names to the list.
Though this movement is certainly admirable, the fact that it needs to happen in the first place is of great cause for concern. The purpose of government is to implement policy frameworks that benefit and protect every strata of society, not leave those at the bottom to wait on the sporadic benevolence of those at the very top. This can best be achieved through fair and innovative taxation and public spending.
One example is that of the Swedish ROT and RUT tax breaks, which were introduced to combat the 2008 crisis. Aimed at the domestic sector, these initiatives discount 50% tax on any home improvement or employment. In addition to invigorating consumer spending in the downturn, these deductions actually increased tax revenue by discouraging black market transactions, requiring that any building contractor or house worker hired be registered. Such measures thereby stamped out much of the tax dodging that has plagued Southern European countries.
With regard to the tax base for the green conversion, Sweden and Germany have perhaps come furthest with their green tax scheme. Carbon legislation has put Sweden in the forefront with regard to combating greenhouse gas emissions while maintaining strong economic growth. Germany has passed incentive legislation for solar energy that has made the country a world leader in solar cell development.
To conclude, it is my view that this combination of fiscal equity and innovation that has enabled the northern European democracies post GDP growth rates which are more comparable to the flourishing emerging markets than their stagnant Western counterparts.
Stockholm 27th of September 2011