As Democrats propose tax hikes, Sweden is pushing cuts

By U.S. EconomyFOXBusiness

Tax hikes on the wealthy remove incentives to innovate?

Former Bain Capital Managing Director Ed Conard on politicians such as Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez calling for a marginal tax rate hike on the wealthy.

Sweden, which has economic policies that are often pointed to by Democrats as support for hiking U.S. tax rates, has been on the path to lowering what individuals pay in income taxes.

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A new draft proposal released by the government includes a number of measures to not only lower taxes on wage-earners, but to create a more business-friendly climate.

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“The American Left often lauds Sweden’s policies, but Sweden’s new tax reforms go in the opposite direction of those proposed by [Sen.] Elizabeth Warren and other leading Democrats,” Chris Edwards, director of tax policy studies at the Cato Institute and editor of www.DownsizingGovernment.org, told FOX Business.

New York Democratic Rep. Alexandria Ocasio-Cortez, who recently suggested imposing a 70 percent rate on those with incomes in excess of $10 million to pay for a new green energy plan, said her economic views have been influenced by the Nordic country – where federal programs have been financed by higher taxes.

During an interview with “60 Minutes” Ocasio-Cortez said her policies “most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden.”

In Sweden, while local tax rates vary, a high-earning resident in 2018 could have paid more than 60 percent in taxes.

However, the Scandinavian nation is looking to overhaul its tax code, including lowering rates for individuals.

A draft agreement, as first reported by Reuters, would cut marginal tax rates and raise the threshold at which people start to pay the higher rate. Taxes for retirees would also be reduced.

In order to offset those reductions, however, the draft agreement calls for an increase in environmental taxes by $1.66 billion.

It’s not just individuals who the government is seeking to lower the burden for.

The draft bill also calls for a further reduction in the corporate tax rate – the Nordic country already has a low rate around 22 percent. It would also reduce taxes on stock options in a bid to attract more international startups.

The move to lower taxes shouldn’t be surprising, according to data compiled by the Cato Institute. Rates for the 26 core OECD countries have been on the decline since the 1980s – when the top rate averaged 68 percent. The current top rate among the countries – which includes the likes of Canada, the Netherlands, Spain and Sweden – is 47 percent.

“With globalization, just about every high-income nation has figured out it is in their self-interest to reduce top tax rates and encourage entrepreneurship and investment,” Edwards said.

Within the past two decades, Sweden eliminated its wealth and estate taxes. On the other hand, Democratic Massachusetts Sen. Elizabeth Warren recently proposed a wealth tax on Americans with more than $50 million in assets. On Thursday, Independent Vermont Sen. Bernie Sanders proposed an expanded estate tax with rates up to 77 percent.

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Even though the Tax Cuts and Jobs Act reduced individual income rates, the caps put on state and local deductions raised effective rates, according to the Cato analysis, which means America still wouldn’t be considered “a low rate country.”

Ocasio-Cortez isn’t the first to point to Sweden as an example for tax proposals. Fellow Democratic socialist Sanders, for example, said the U.S. should “look to” countries like Sweden to “learn from what they have accomplished for their working people,” during his campaign for the 2016 presidency. The economists who advised Sen. Warren on her wealth tax plan also looked to Sweden's example for guidance.