US-style tax reform spreads to tax-strapped Scandinavia
Taxes. To many Scandinavians, there is no dirtier word. ``For every extra mark I earn,'' complains a Finnish television journalist, ``I lose three-quarters of it to the state.'' His complaints now are being heard, in large parts thanks to Ronald Reagan. American tax reform is crossing the Atlantic, spanning ideological boundaries, and reaching Scandinavia, home to some of the world's highest personal taxes.
Sweden's left-wing government, Denmark's right-wing rulers, and Finland's right-left coalition all either have introduced or are preparing reforms to cut the high marginal income tax rates. These diverse voices criticize these high rates for turning tax evasion into a national pastime, raising inflation, and perhaps worse of all, taking away incentives to work harder for more pay.
``Reagan's ideas are having a tremendous impact,'' says Max Jacobson, a former Finnish diplomat and Director of the Finnish Council of Economic Organizations. ``Like Reagan, we want to cut tax rates and simplify the tax system.''
The reasoning behind the Scandinavian tax proposals mirrors much American thinking: High taxes reduce efficiency. In Sweden, many companies such as IKEA, one of the country's most popular retailing chains, and talented people including investor Erik Penser have left their homelands to relocate in places with lower taxes. Many Swedish tennis players, including Mats Wilander, reside in Monte Carlo to escape taxes.
A widespread feeling exists that the tax system is out of control. In one surreal example which shocked Swedes, children's book author Astrid Lindgren wrote a fairy tale dramatizing the unfairness of the tax system on self-employed people - she had to pay more taxes and fees on one year's income than she had earned.
``Even the most socialist Swedes realize that they can't keep on expanding the tax funds,'' says Mats Svegfors, political editor of the Stockholm daily Svenska Dagbladet. ``Their model of ever-increasing taxes offers no promise for the future.''
All the same, the Scandinavian urge for tax revision does not translate into a more general enthusiasm for Reagan-type social policies. Scandinavians benefit from generous welfare systems, and no government, whether of right or left, wants to cut these benefits.
``Almost all Swedes want to change the tax system and keep the welfare state,'' explains Bengt Westerberg, leader of the Liberal Party, a leading non-socialist party. ``So we want to reduce marginal taxes while keeping the total tax revenue at the same level.''
To pull off this delicate balancing act, governments hope to make up the lost taxes by eliminating special allowances and concessions which have proliferated in recent years. Scandinavian taxpayers generally are allowed to take deductions on a wide range of personal expenses, from loans and mortgages to insurance payments.
``Our tax code today is an unbelievable jungle,'' complains Pertti Salolainen, Finland's Minister for Foreign Trade.
By clearing the jungle-like mess, Mr. Salolainen and others active in promoting tax reform hope to reduce inefficient use of capital and widespread cheating. Swedish analysts say that lower tax rates could diminish underground activity, estimated at up to 20 percent of Sweden's gross national product, bringing more funds into the taxed above-ground economy.
Under this vision, Reaganomics is turned upside down. Swedish socialists say increased efficiency spurred by tax reform actually would ensure the generous Scandinavian welfare states, the cost of which is becoming larger and larger.
``For us to keep social services at a reasonable level, we need economic growth,'' explains Bengt Lindqvist, the Swedish deputy minister of Health and Social Affairs. ``And for growth, we have to encourage people to work harder.''
How far to go in encouraging harder work through lower taxation remains controversial. In general, leftist parties in both Sweden and Finland want the maximum tax rate no lower than around 60 percent, while the rightist parties aim for a maximum of about 50 percent. This compares to a high of 33 percent in the United States. Other questions also remain unresolved. At what income level should one be forced to pay the maximum rate? The left wants more well-off people to pay the maximum rate than the right. And when should one begin to pay taxes? The right wants more low-income people to pay than the left.
Because of these differences, getting timetables for enacting of tax reform remains difficult. According to Minister Salolainen, Finland's new government hopes to present parliament with tax legislation for the 1989 budget. Sweden's Social Democratic government already made its tax overhaul proposal earlier this year, but the tax debate looks likely to become a central issue in next year's parliamentary election.
``Tax reform will come, we all agree on that,'' concludes Mr. Jacobson, the Finnish commentator. ``But many compromises still must be made.''