Swedish Tax Rates in a Spanish Culture

Spain is becoming one of Europe’s highest-taxed countries, with a top marginal tax rate of 52 percent, near that of Sweden at 56 percent.

It isn’t going to work. (Felt like saying “ain’t” but want to set a good example.)

Such a high tax rate is more feasible in Sweden (or less unfeasible) because the rule of law is much stronger there – perhaps the strongest in the world. There’s something about Sweden’s culture such that people comply with the law to a much greater extent than anywhere else. Although to be sure, even Swedes can have trouble paying that much. One of my sports heroes, Swedish ski racing legend Ingemar Stenmark, moved to Monaco. Why? According to Wikipedia, for tax reasons. Tennis star Bjorn Borg moved to Monaco too, as did lots of other Swedish millionaires.

Generally, the farther south you go in Europe, the less strong is the rule of law. People flout the law to a greater extent. Greece is a prime example. They kept jacking up the tax rates on the rich, but many rich don’t pay. And they can get away with it due to a weaker rule of law.

It’s a similar culture in Spain. I haven’t been there, but I’ve been to other southern European countries –  Italy and Greece. Just from a country’s “curb appeal”, you get sense of how orderly things are there. How well drivers obey the traffic rules. How well pedestrians wait for the walk signal before they cross the street. How clean the streets are. How well things are maintained. The more orderly things look in a particular country, it’s a good bet that the more people comply with paying their taxes, too.

So if Spaniards see Sweden with a 56 percent tax rate and wonder why they can’t have the same thing in Spain, there’s good reason why they can’t. You’re not going to raise the same kinds of revenues that you would in Sweden. Tax evasion will be rampant.

(It’s a similar situation with the United States. Lefties here look upon Sweden’s and Germany’s tax rates with wistful eyes, but those rates aren’t going to work here. Ever seen a German at a crosswalk and refuse to budge when the don’t walk sign is flashing, even though there are no cars around? Happens a lot. The rule of law is stronger there than here. In America, if there are no cars, then why stand there – walk!… And in Mexico, I’ve noticed that if you’re in your car at a red light and there are no cars around, then drive! Like I said I haven’t been to Spain, but maybe it’s a similar situation there. If you know, then let me know.)

So until Spain gets out of its debt predicament mainly by cutting spending rather than by raising taxes, it’s going to remain mired in debt and stagnation.

That’s confirmed by a study, referred to in a previous post. After analyzing the experiences of dozens of countries in attempting to reduce their debt-to-GDP ratios, the researchers found that the instances of failure mainly relied on large tax increases and only modest spending decreases, if any.  Instances that succeeded mainly relied on large spending decreases and only modest tax increases, if any.