# Why is it said that Sweden has a regressive income tax system?

Quoting from Wikipedia

Sweden has a progressive income tax, the rates for 2014 are as follows:

0% from 0 kr to 18,800 kr (~0 – 2,690 USD)
Circa 31% (ca. 7% county and 24% municipality tax): from 18,800 kr to 433,900 kr (~2,690 – 62,140 USD)
31% + 20%: from 433,900 kr to 615,700 kr (~62,140 – 88,180 USD)
31% + 25%: above 615,700 kr (88,180 USD and up)[4]

Why is it said that it is regressive?

E.g.

This post from Washington Post

Excellent question. You can understand this by reading the original study referred in the article. I will try to provide a short explanation here.

Basically the study argues that if you take into account all sorts of taxes like taxes on properties, consumption, dividends, etc. the European countries tax their rich residents relatively less than the poor residents, while the US does the opposite. This is possible because there are other significant taxes besides the income tax. As the study states:

The main reason for this is the relatively low reliance of the American fiscal system on sales taxes, which constitute a much higher share of revenues in other countries (even when including state and local taxes in the US case, as the figures above do). General sales taxes place a disproportionate share of the tax burden on the lower end of the income distribution because expenditures are higher as a share of income as we move down the distribution.

To gain an exact understanding of the key claim in the WP article we have to understand both the Lorenz Curve and the Kakwani index. The Lorenz Curve has a pretty good Wikipedia page, I recommend browsing it. The Kakwani index is chiefly used to calculate payments for health services.

The Kakwani index is defined as twice the area between a payments’ concentration curve and the Lorenz curve and is calculated as, $\pi_K = C - G$ , where $C$ is the health payments’ concentration index and $G$ is the Gini coefficient of the ATP variable. The value of $\pi_K$ ranges from –2 to 1. A negative number indicates regressivity; $L_H(p)$ lies inside $L(p)$. A positive number indicates progressivity; $L_H(p)$ lies outside $L(p)$. In the case of proportionality, the concentration lies on top of the Lorenz curve and the index is zero.

Source

The difference in the Kakwani index is small though, the range of the graph in the article is in the hundredths.

• (Let me verify and understand the source before accepting it) – Luis Masuelli Oct 21 '15 at 19:47
• (Have +1 upvote meanwhile :)) – Luis Masuelli Oct 21 '15 at 19:47
• Please correct me if I'm wrong: This means that more money is put in activities with less % tax, and not-so-rich people spends LOTS of money in such activities (which are closely related to properties, investments, ...), and proportionally less in the usual income tax? – Luis Masuelli Oct 21 '15 at 20:09
• @LuisMasuelli The study argues that the main culprit is the sales tax (VAT). An example: I have 800 golds, you have 4000 golds. Income tax is progressive, I am left with 600 golds, you have 2800 golds. But I spend all 600 golds on food, and 100 of this goes to the government because food carries VAT. You spend 1200 on food, 200 of this goes to the government. The remaining 1600 hundred you spend on activities that your government does not tax (build a house, go abroad). In total I gave the government 400 + 100 golds, half of my income. You gave 1200 + 200, less than half of your income. – Giskard Oct 21 '15 at 20:32
• Your explanation sounds nice to me. But the study also refers to a case where only Direct Taxes (both graphics are shown: with sales taxes and without sales taxes) are taken into account (i.e. no sale-related taxes here). In that case, where we don't count VAT-charged stuff ¿what would be the explanation? – Luis Masuelli Oct 21 '15 at 20:36

There is a historical-sociological reason why, despite USA being considered the "fortress of capitalism" (which in principle allows for an arbitrary degree of wealth and income inequality),still, rich people are taxed less in Europe (which supposedly takes a more, ahem, "socialist" approach), even if we exclude indirect taxes:

In Europe with its historical burden, prior to the industrial revolution the aristocracy had its wealth in land, since we are talking about agricultural economies. The central authorities of the day (the King) taxed the aristocrats which in turn, in order to cover both the King's taxes and their own living, taxed the peasants with exorbitant "tax rates", in the form of almost total appropriation of agricultural produce, given the socio-economic laws of the era. So for centuries land per se was not essentially taxed (after all it was "god-given"): it was labor that was taxed almost to death.

Add to this the fact that these social arrangements were embedded in a theocratic system that gave them religious credence, count again the length of time that it lasted, and we can perhaps understand why modern Property taxes in Europe tend to be lower than Property taxes in USA, were the apparently more individualistic culture cuts both ways -meaning that the State has also and "individualistic" approach to things: if it is after a certain amount of revenues, it has fewer qualms to take them where it can find them. In Europe the same concern, constrained by tradition not to be wholly fulfilled through Property taxes, and ideologically and socially pressed to exhibit a redistributional character in income taxation, has led to larger indirect taxes, like VAT.

So either including or not indirect taxes, the tendency goes in the same direction: relative tax burden is heavier for "Europe's poorer", than "USA's poorer". Of course this does not conclude on whether it is better to "be poor in USA or in Europe", since one should also quantify the social benefits that the poorer receive in Europe compared to the USA, as regards, education, health, direct subsidies, etc.

• While this answer is interesting it would be great if it was backed up by some data. – Giskard Oct 22 '15 at 5:30
• @Denesp Data like effective tax rates you mean? Because history is also data. – Alecos Papadopoulos Oct 22 '15 at 10:53
• Yes, I meant something like current property tax rates in US and EU countries. – Giskard Oct 22 '15 at 11:22
• @denesp I think I have a study somewhere in my computer, let me check. – Alecos Papadopoulos Oct 22 '15 at 11:42
• Answer sounds good. Have +1 meanwhile (both answers up to now add value in different ways; its hard to choose who will get +acc) – Luis Masuelli Oct 22 '15 at 15:36