Jun
1
Martin Lindkvist on the Swedish Tax Situation
June 1, 2007 |
Regarding the Swedish tax situation, it is encouraging that we now have a government that aims to lower taxes. At over 50% of GDP we are highest in the world. I am sure that it will be very beneficial long-term as huge amounts of money currently are held outside the country to avoid taxes, and this outflow will be lessened and money and companies will instead grow here. It will be a triumph for the optimists.
While companies and high net individuals try to lower taxes by either going abroad or at least keeping their capital abroad, ordinary citizens gravitate towards using the underground economy and paying Polish guest workers outside the tax system for help with cleaning, house renovation and such. Even a few ministers in the government did that, and had to leave their posts once discovered. But this excerpt from the earlier mentioned pdf, is too funny by far, showing that even the tax authority tries to avoid the sky high taxes here.
"Even the Swedish tax authority tries to avoid Swedish taxes. As noted by the Wall Street Journal, 'When it comes to paying taxes itself, the Swedish Tax Authority, responsible for collecting some of the highest in the world, would just as soon keep them as low as possible. It's saving a bundle on the production of slick TV spots that encourage Swedes to file online by producing them in the neighboring free-market, low-tax haven of Estonia'. _Spokesman Björn Tharnstrom told us, "We decided to do it in Tallinn because the costs are lower. One of those costs is taxes, of course."
Victor Niederhoffer asks:
Do you see any opportunities for Swedish equities with new tax rates?
Henrik Andersson comments:
It might come as a surprise that despite the highest tax rates in the world, the Swedish stock market is one of the global winners during the past 100 years or so. Of course it has to do with the state of the country 100 years ago not high taxes.
The earnings yield differential for the Swedish equity market is currently 2.0%.
Kim Zussman adds:
Point at figure analysis suggests high correlation between national tax rates and risk-return profiles of the indigenous female. Like Sweden, Russia has exorbitant nominal tax rates commensurate with 100% non-compliance.
Any comments about reduction in US tax rates relating to immigration patterns or legislated anti-social Darwinism are bifurcative.
From Jan-Petter Janssen:
My macroeconomics teacher told an anecdote about the Norwegian tax system (Norway's tax system is very similar to neighboring Sweden's.) An American professor came visiting him while he was building a sauna. The American just couldn't understand why he was making it himself. Did the Norwegian professors really get paid so badly he couldn't afford a carpenter? Well, the answer was both yes and no. No, the wages were quite good. Yes, even quite high wages could not buy much labor. The Norwegian came up with a calculation that stated this problem. After income taxes, VAT and the employer's tax, a gross $4 has to be made in order to leave the carpenter with $1.
However, while the economic policy makes labor-intensive services ridiculously expensive, the stock market is flying high. The economy is excellent in supplying our natural resources to a demanding world. In February 2003 the benchmark was playing with sub 100 levels. This Friday it passed the 500 mark for the first time.
Thomas Bjurlof writes:
I left Sweden some 25 years ago a never returned (except for visits) partly for reasons related to the tax regime and the monolithic political culture. There were other reasons more related to opportunity.
When my father died in 1992 I spent a couple of months in Sweden and I then invested in a number of smaller tech companies. You can imagine the results having timed the bottom of the 1992 crisis and the beginning of the Internet boom (by luck, since in those days I had no idea what a banking crisis was).
The event that tipped my decision to invest was that someone offered gold as payment for some items I sold! I don't know whether this event was representative, but it certainly hinted at a shortage of liquidity in the markets.
I have recently noticed that GaveKal is very upbeat about the Swedish market, so Martin's positive statements about taxation intrigue me. What if tax rates decline say an average of 10%? Is there any research that quantifies the effect of taxation on the market? I understand the direction a change will cause, but what about the quantity?
My question is what reason is there to believe that there will be significant sustainable change to the system this time? Should we start believing in a Thatcherite change emerging in Western Europe? Is there a new "Swedish Model"?
Since there has been a cultural connection between France and Sweden for a long time, might the election of Sarkozy be a first hint of a tipping point?
Martin Lindkvist responds:
Indeed, Thomas hits the nail on the head as we had a "new start" also in 1991 when a right wing government started to lower taxes only to be voted out of power three years later and taxes once again ware raised. And I don't know how good our chances are for a lower tax environment for the long term, although my gut tells me that it's less than a 50% chance (if that sounds pessimistic, it should be said that I still think we have a better chance now then ever, not least because of international development).
The problem you see is that to lower the tax rates, the costs must of course be lowered, and the obvious and most important cost savings can be made in the redistribution area. And then there are always groups that gets their benefits lowered and are an easy target for the socialists in the next election.
In a sense it is a miracle that the right wing won the election at all. Ha ha, they had to rebrand themselves as "the new labor party." This was true because one of the most important changes has been to start to lower taxes on work and at the same time lower unemployment benefits. Thus it should pay to work. They did get that logic across, but it has been harder for them to get across why it is important to take away taxes like the wealth tax and realty tax. And that might be why they would fall way short of winning the election were it be held again today.
It is amazing but the average Swede has no clue how much he or she pay in taxes. If you ask, you might get an answer like 31%, which is the typical tax for a worker up to about SEK25k a month. If you ask one that is paid more, you might get an answer of 55%, which is the highest marginal tax rate. They are both wrong of course since you have to add a lot to get the full picture. Social costs are paid by the employer but they lower the room for paying the worker.
Then you have value added tax on most things bought, and special taxes on things like liquor, gas, cigarettes, etc. Realty tax of course also raises the rent for those that don't actually own their own house. And more. The Swedish taxpayers association estimates the real tax for a low paid worker to be 65% for a person earning SEK 132k (that is less than USD 20k for crying out loud!), and 69% if you are at a "lofty" SEK 397k (and it does not stop there of course but goes much higher the more you earn).
The real irony is that since the person earning more sees more tax being withheld on the paycheck, percentage wise, he is more likely to vote for the right wing than the poor guy not earning much. But the taxation is almost as high on the latter.
It is a shame that Swedish people have been brainwashed to the extent that they don't even understand what monster they have created in the Swedish tax system. And this is where the rubber meets the road. If things are to change for real this time, then people will have to wake up and understand that if they are paying between 65-80% of their real earnings in tax then they are not free. The day they wake up and want to be free we can expect lasting change
Comments
WordPress database error: [Table './dailyspeculations_com_@002d_dailywordpress/wp_comments' is marked as crashed and last (automatic?) repair failed]
SELECT * FROM wp_comments WHERE comment_post_ID = '1687' AND comment_approved = '1' ORDER BY comment_date
Archives
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
- December 2008
- November 2008
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
- May 2008
- April 2008
- March 2008
- February 2008
- January 2008
- December 2007
- November 2007
- October 2007
- September 2007
- August 2007
- July 2007
- June 2007
- May 2007
- April 2007
- March 2007
- February 2007
- January 2007
- December 2006
- November 2006
- October 2006
- September 2006
- August 2006
- Older Archives
Resources & Links
- The Letters Prize
- Pre-2007 Victor Niederhoffer Posts
- Vic’s NYC Junto
- Reading List
- Programming in 60 Seconds
- The Objectivist Center
- Foundation for Economic Education
- Tigerchess
- Dick Sears' G.T. Index
- Pre-2007 Daily Speculations
- Laurel & Vics' Worldly Investor Articles