Adopting Scandinavian social benefits and taxes in the U.S.

For something unrelated, I was researching some of the “social benefits” programs in Norway. This is my summary of what I came across – which may be sort of accurate or not.

What I found interesting is that this is nearly identical to what the Democrats have proposed for the U.S. (I am not a member of any political party.)

Some of the benefits already exist in the U.S. (Social security, for example) while others are new (“free college”).

Vacation

• 25 days paid/year
• 31 days/year at age 60+
• Many jobs have negotiated more days of vacation

Education

• University education is free, even for foreign students studying in Norway.
• University graduate education is free up through PhD level.

Health care

• Almost 100% coverage for health, dental, medical transport. Also includes coverage when traveling in the EU.

Maternity Leave

• For mothers: 80% pay up to 59 weeks, or 100% pay up to 49 weeks.
• For fathers: 15 weeks paid leave.
• Either can then take up to one year unpaid leave beyond that.

Child Care

• Heavily subsidized for children age 0-5 (nearly free)
• Subsidized (but not free) for older children

Sick Leave and Disability

• 100% pay up to 12 months, then 66%

Taxes

• Standard and personal deductions (similar to US)
• Then, 22% flat rate to US$22,000, then rises progressively to 33% at about $100k (that also includes costs of health care)
• 8.2% social security
• Property taxes
• Value Added Tax (25% sales-like tax, and 15% VAT on food)
• Capital gains tax flat 22%

A person making 55k / year will pay 24.7% in taxes or 32.9% including social security.

A person making about 100k and up will pay about 33% or 41.2% including social security.

Of course, on top of that, you pay 25% VAT (sales tax), property taxes and other taxes/fees.

In the U.S., social security tax is 12.4% but most workers only see 6.2% as the other half is, basically, taken out of income by the employer and used as the “employer’s contribution”.

The U.S. Federal tax scheme is progressive, without the large flat rate starting level. However, some states, like Oregon, have a largely flat rate 9 to 9.9% tax for most income and capital gains. Some cities also have additional income taxes. In worst cases, this can add 10-20% to the U.S. tax burden. It’s important when comparing taxes to try and identify all of the possible taxes: municipal income taxes, state income taxes, federal income taxes, state and federal capital gains taxes, sales taxes, property taxes, social security and Medicare taxes. This is why comparing one nation’s taxes to another is hard to do.

When all of the taxes are added together, it is apparent that taxes on Norway are very high. In Denmark, it is common for wage earners to pay 40% to 70% of their total income in taxes (those are not marginal tax rates but actual percent of income). The average Dane pays 45% of their entire income as income taxes.

There is a proposal to raise the U.S. capital gains tax to 39.4%, almost twice that of Norway. Economists say the maximum economic opportunity comes below 28%; after that, people change their behavior and the government gets less than expected and economic growth is harmed.

Another proposal would raise inheritance taxes for some to 61%. Since some states also have inheritance and/or estate taxes, these could raise the effective “death tax” to 70 to 80% of the estate value. Basically, the government would confiscate the majority of one’s wealth at death – this could make it difficult for some family businesses, including farms and ranches, to be continued into the next generation.

The Democrats have a tiny majority in the House and 50:50 in the Senate and some of them claim this gives them a mandate to restructure the U.S. into a high benefit/high tax scheme like those of Scandinavian countries.

Wealth Tax

• In Norway, wealth of more than US$60,000, has a 0.7% (to city) and 0.15 (to state) or 0.85% of amount > $60k. That means for each dollar equivalent over US $60,000, you would pay 0.7% of that wealth to the government.
• There are proposals in the U.S. for a wealth tax, albeit at far higher levels of wealth, for now.

Social Security Pension Program

• 8.2% pay check contribution in Norway
• Can retire at age 62 with 40 years work contributions. Can count work from age 13 onward.
• Everyone eligible for retirement at age 67.
• Pension based on “basic pension” + supplemental, based on years worked.

Scandinavian Social Benefits and Taxes Model

In the U.S., in 2021, the Democrats are proposing the U.S. adopt a Scandinavian social benefits and taxation model. Basically, a clone of the Scandinavian model.

Of the above, here are the proposed changes to the U.S., as best I can tell.

• Vacation – no change
• Health care – ACA subsidies extended, but not otherwise making fundamental changes. Some Democrats would like to implement a so-called “Medicare-for-All” concept (unrelated to Medicare except for the name) but this is unlikely to occur.
• Education – free community college, and free tuition for families earning less than $125k, eliminating existing student loan debts
• Maternity Leave – proposed family leave law
• Child care – free pre-K school
• Sick Leave and Disability – no change
• Taxes – proposed 39.4% capital gains tax, proposed higher taxes for high income earners, discussion of 3% wealth tax on high wealth (various numbers of $10 and $50 million and higher). To this, we must also add state, county and city taxes – which in some jurisdictions yields a combined marginal tax rate over 60%.
• Social Security – no changes

No guarantees on the accuracy of the above information. I was compiling this for some “back of the envelope” understanding – not necessarily accounting level accuracy. I thought this was interesting and chose to share it here on the blog.

UPDATE MAY 20, 2021

Child care tax credits ($300 per month per child) are likely to become permanent, to cut childhood poverty. That is the stated goal of proponents. Again, as noted in this post – the Biden Administration’s goal is for the U.S. to adopt Scandinavian-like social benefits programs and Scandinavian-like high taxes.