Democratic Socialists are rallying behind Zohran Mamdani’s proposal to increase taxes on millionaires if he is elected as mayor of New York City. This initiative has sparked discussions about tax structures, drawing comparisons with the experiences of Sweden and Denmark. While these Scandinavian countries are often celebrated for their progressive tax systems, a closer examination reveals that their models may not fully support the ambitions of those advocating for significant tax increases in the United States.
Understanding the Scandinavian Approach
Mamdani aims to implement an additional 2 percentage point tax on individuals earning over $1 million annually. This change would raise New York City’s top income tax rate to 52 percent, combining federal, state, and city taxes. However, passing this proposal would require approval from state authorities, and Governor Kathy Hochul has shown resistance to such measures.
Despite these obstacles, Mamdani’s surprising electoral success indicates a growing appeal of tax progressivity, especially among younger voters. Advocates argue that a more progressive tax system promotes fairness, a sentiment echoed by notable figures, including Nobel Laureate economist Paul Krugman and musician Bruce Springsteen, who admire Sweden’s welfare state.
Yet, it is essential to recognize that Sweden and Denmark are not as socialist as many believe. Their economies rank among the freest globally, allowing citizens to engage in business with minimal government interference. Individuals can accumulate wealth without the fear of excessive inflation eroding their savings, and property rights are strongly protected.
The Tax History of Sweden and Denmark
The economic histories of these nations highlight the limitations of relying heavily on taxes from high-income earners. During the 1970s, Sweden attempted to impose high taxes on the wealthy, which led to a significant decline in business investment and a migration of successful individuals. Notable figures, such as the founder of IKEA, moved abroad, as did prominent athletes like tennis star Björn Borg and skier Ingemar Stenmark. The renowned director Ingmar Bergman faced legal issues over tax evasion, resulting in a personal crisis that pushed him away from filmmaking in Sweden.
In response to the negative impact of steep taxes, Sweden revised its tax code in 1990, adopting a flatter personal income tax structure. This system means that tax rates do not increase significantly with higher incomes. Although the top personal income tax rate remains high at 55 percent, it applies at a relatively low income threshold, making it one of the flattest tax structures among developed nations.
Denmark exhibits a similar trend, where the country funds extensive social programs through a broad tax base. Both nations have learned that a sustainable welfare state cannot depend solely on the wealthiest citizens for funding. This reality challenges the notion that a more progressive tax system can solely rely on taxing the rich.
The upcoming study by the Fraser Institute indicates that Sweden and Denmark feature some of the least progressive tax systems within the Organisation for Economic Co-Operation and Development (OECD). In contrast, the highest-tax states in the United States, like New York, demonstrate more progressive structures.
While promising enhanced services through taxation of the wealthy may be politically appealing, the experiences of Scandinavian countries serve as a cautionary tale. Both in New York City and across Scandinavia, the sustainability of such systems ultimately depends on a comprehensive approach to taxation that involves contributions from all income brackets.
