For years, Senator Bernie Sanders has touted Sweden as his favorite democratic socialist model, praising the country for its high tax rates and massive social welfare spending programs. He may want to change his tune. According to a recent Wall Street Journal article, Sweden’s socialist experiment was an enormous failure, and a capitalist makeover is underway in Sweden.
Sanders has pointed to Sweden as the model for the democratic socialism he embraces and espouses. He has extolled their socialist programs as the type of system the U.S. should implement, repeatedly praising the high tax rates on the rich and big corporations, rigid government regulations, and big government spending on free social programs.
Sweden’s Social,Democratic Party launched their socialist experiment in the 1970s and 1980s, sharply raising taxes and spending. The top individual tax rate was increased to nearly 90%, and the corporate tax rate was raised to 60%, inheritance taxes were raised, and a wealth tax was increased to historical highs.
The results were predictable. As the Wall Street Journal article pointed out, “the changes triggered a long period of weak growth, stagnant after-tax income, and ballooning deficits and debt.”
The high tax rates discouraged work, saving, and investment, the welfare state became unsustainable, and the economy collapsed. The most successful companies and people left the country, including IKEA, H&M, and tennis great Bjorn Borg. In 1970, Sweden was richer than every G7 country. By 1995, the country was poorer than all of them. The socialist experiment clearly failed.
The Swedish people demanded a change. The government cut back spending on social programs and reduced taxes across the board. The wealth tax and the inheritance taxes were repealed. The top individual tax rate was cut nearly in half. The corporate tax rate was reduced to 20.6%, one of the lowest tax rates in the OECD, and five percentage points, or 24%, lower than the U.S. combined federal-state tax rate.
According to the Wall Street Journal piece, the lower taxes “sparked a surge in entrepreneurship and economic growth.” Incomes have doubled since the 1990s, after stagnating under high taxation. While other countries are raising taxes, Sweden has cut them three years in a row. Entrepreneurs have returned to the country, a tech boom is underway, and there are now more billionaires per capita in Sweden than there are in the U.S.
The lesson from Sweden should be clear to the U.S., where the ascendant wing of the Democratic Party is embracing Sanders’ version of high taxes and big spending. As the Swedish experience has shown, their democratic socialism did not work. And it will not work here. High individual and corporate tax rates, wealth taxes, and more social welfare spending will damage the economy, increase inflation, and hurt American incomes and jobs.
