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Abolishing inheritance tax sent Stockholm's startup ecosystem soaring – tax cut could revive Britain's flagging economy
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- Title
- Sweden's little known tax cut could revive Britain's flagging economy
- Authors
- Karl Gustel Wärnberg
- Published
- Feb 26 2024
Yes, that is kind of the point....being able to collect more money 'at the end of the line' lets the other taxes (particularily income) remain at lower rates.
Otherwise you end up getting giant snowballs of mulitgenerational wealth and delusions about being self-made.
And where did you get the idea that just because a government collects an additional tax that they would keep other taxes down? It's not like there's a fixed appetite for money in government spending. The more they can collect, the more they do. I've only ever seen taxes go up and get added on, not lowered.
Well, for one, that government spending generally translates to public benefit. Those tax dollars aren't going into a pit, they're being used to provide health and safety services.
Heck, in the USA, you can visibly see the declines where tax cuts are implemented. Wanna go see what its like with 'low taxation'? Take a field trip to "Measles capital of the USA, Florida."
Most red-state ills in the USA boil down to this 'taxation bad' malarky.
Have you looked at how many of your tax dollars are going to service the astronomical debt that the US is carrying? As of January 2024 it costs $357 billion to maintain the debt, which is 17% of the total federal spending in fiscal year 2024. And the debt keeps going up by trillions.
What’s wrong with that? I even own US debt.
I would argue that US government debt is the best investment you can make right now in fact. So long as our government is going to engage in massive deficit spending there is always going to be appetite for investors in government bonds, and there is no indication they will raise taxes in any real way to change this. So long as that's true bond yields will stay high and there is no debtor that is more guaranteed to pay out than the US government right now.
I was responding to that comment "government spending generally translates to public benefit"
Dollars spent on debt servicing aren't going toward education, health, infrastructure, etc so there's no public benefit. You might personally be benefiting by buying bonds but that isn't a public benefit. As more tax dollars get eaten by debt payment there's less for other necessary services so its a net loss for the American public.
Imagine how far that 357 billion could go if your gov actually put it into free public healthcare like most other developed nations.
It’s one and the same. The reason we issue that national debt is because the government believes that what it spends it on will bring in more revenue in the future than the interest costs now. That debt is there because we spent it on infrastructure and whatnot.
National healthcare would be a good example. We’d have to issue a lot of debt to make that happen. Although national healthcare can be cheaper than the current system, nonetheless A LOT of money would need to move from the private sector to the public sector, and debt would be the tool the bridge the gap between the current state and future tax funded state.
The US dwarfs every other country by spending nearly as much on military spending as the rest of the world put together: https://en.wikipedia.org/wiki/United_States_federal_budget#/media/File:Military_Expenditures_by_Country_2019.svg
There is an incredible amount of money going into the military industrial complex. And you don't have to look far to see the incredible amount of waste and abuse from those billions of dollars. Don't think that's the idea for bringing in more revenue in the future.
How does that even address the point being made here?
You're thinking about debt as it exists for a personal household. The math changes when you're a nation state that can print its own currency. I think it's helpful to look at the relationship between these two graphs and understand why one is exponential and one is linear:
https://fred.stlouisfed.org/series/GFDEBTN
https://fred.stlouisfed.org/series/GFDEGDQ188S
With regards to the security budget: the United States, rightly or wrongly, isn't just lighting that money on fire. there is a serious value proposition being made with regards to promoting and protecting US interests. Not to mention that there is a minimum threshold for security in a nuclear world, and most Western countries get to ride on American coattails to some degree.
Explain to me how US national debt being 30% of the nation's GDP in 1981, but 132% of GDP in 2020 is a net plus for the American public?
And how does "quantitative easing"/ printing money, not just contribute to inflationary pricing and devaluation of US currency? Canada just did the same thing, during covid, and sent out billions and billions of dollars into the economy. The result has been huge inflation on everything from groceries to housing.
If not for the Bush 2 and Trump's tax cuts the debt would be shrinking permanently.
Turns out the problem isn't spending, it's the severe reduction in the collecting. Particularily starting above about $160k, when we also stop collecting social security taxes for some dumb reason.
I think it's value neutral and would ultimately depend on what sort of expenditure investments were being made. I don't have the chops to answer that question but I don't think you can just look at the bigger number and decide it's worse.
To be clear I'm not advocating we should just print money when we feel like it, just trying to illustrate that that national debt is not at all like household debt. But to your point I'll just say that we don't get to see the reverse side of that transaction -- the world in which central banks didn't utilize QE and we got stuck in a liquidity trap.
It is additional revenue, though. An incredible amount of wealth is allowed to be generated in the post WW2 era because of US naval power protecting the principle of free seas, for instance.
Additionally, standing military power is like insurance - you don’t know you need it til you need it. I bet Ukraine wishes it had a higher military budget in the past.
Undoubtably there’s inefficiency and waste in the pentagon, but that’s just how large bureaucracies are. It could be more efficient if it were privatized, but that, uh, sounds a bit too close to metal gear solid.
Not sure this is accurate. When medicare was fully public, more cents in every dollar went toward actual healthcare (as opposed to administration) than any private insurance. And no cents went toward executive compensation or shareholder dividends.
Private companies have plenty if inefficiency, and rent seekers to boot.
Seriously? Taxes (or transfer payments or credits to distribute taxes back) get adjusted up or down all the time.
Not sure where you live but NEW taxes show up and get added on to what we're already paying.
Here in Canada we had a brand new Goods and Services Tax added in 1991, so 5% added to every good sold and every service in Canada. In 2007 we had a brand new Carbon Tax added to anything that emits CO, which is everything because it applies to all the vehicles which transport all our goods. The gov is proposing to keep raising it til its literally too expensive to drive a gas car or heat your house with natural gas. Nice, eh?
There has been two fundamental shifts in who pays taxes in Canada since the late 1990s: A shift of the tax bill from business to families (through large reductions of corporate income taxes and a proliferation of business subsidies and tax credits) and a shift of the tax bill from higher income to middle and modest income families (through personal income tax cuts at the high end)
So who gets constantly pressed for more? The average middle class Canadian. We have a group who calculate 'Tax Freedom Day' in Canada - If you had to pay all your federal, provincial and municipal taxes up front, you would give government every dollar you earned from January 1st to Tax Freedom Day, when Canadians finally start working for themselves. Tax Freedom Day was Monday, June 19, 2023. We work almost exactly HALF the year to pay our taxes.
I dont see taxes going down. The climb is up. Always up.
Worth mentioning that this tax is revenue neutral from the perspective of the government. Additionally, by not taxing carbon for its environmental impact you're effectively transferring wealth from future generations to the current ones.
If you've never seen taxes go down, you need not look further than Sweden, the primary country in the subject of this topic, where the tax quota* (Swe: skattekvot) was at a peak in 1990 and has gone down since then.
* the ratio between total tax revenues and GDP, which tries to measure all forms of taxation.
Unironically, yes.
And no, the climb isn’t always up, because the government also adjusts tax rates and increases payouts through credits.
"Increases payouts" while claiming that we'll get back more than we pay. Which isn't true for most Canadians, but it was a good marketing strategy when they rolled it out.
Just a heads up that the Telegraph is very much a Conservative newspaper and is strongly pro-Establishment. They are basically just a posh version of the Daily Mail, as a glance over their other headlines will show.
Opposing inheritance tax is right up their street because otherwise their landowner leech readership and their children might have to actually work for a living. Heaven forbid!
For reference the threshold at which inheritance tax gets collected is £325000, so it's only paid by the very rich in the first place.
Yeah the premise of this article is very "trickle down economics". I believe that inheritance taxes should have a fairly high threshold before taxation to still incentivize families to build generational wealth, especially as home prices increase, but someone inheriting millions of pounds will still be able to form a startup after paying taxes.
Inheritance tax is already pretty reasonable in the UK. It's 40% on anything above £325k. If a house is part of the estate then it's 40% above £500k.
Rishi and his pals are trying to cut it because it's going to cost them a lot of money when they come to inherit vast sums of wealth. 90% of estates don't pay a single penny of inheritance tax, yet Tory propaganda has led to over 50% of people thinking it's unfair. I wonder if a large part of that is the cuts to public services that mean people don't see as much benefit from the taxes they are paying?
They're taking a play out of the US handbook.. A brief play:
make cuts to government service
"Look how ineffective and useless the government service is, cut their funding and give a tax cut."
service further falters
"Government obviously is incapable of doing <service it has been doing since the 1800's>. Let's open it to the private sector!"
costs go up and quality further declines
"We have the best <service> in the world!"
I wrote this with education in mind, as that's the big target in the USA. But I have no doubts the Tories are salivating at the chance to gut the NHS and bring America's "Greatest Healthcare System In The World" to the UK.
The current Chancellor and previously long-serving Health Secretary literally wrote a book about doing just that
Hunt has since claimed he's changed his mind and "backs" the NHS but nothing he's actually done suggests that is true. As an aside, I think Jeremy Hunt is the most mispronounced politician of recent times (hasn't happened so much recently but I'm sure there was a competition between presenters to 'accidentally' get his name wrong)
It depends on what you consider a high threshold. The US threshold is around $12m at the moment. The UK thresholds applied, for example, to California, would mean that many people who owned even a small home would be significantly over even the house-included threshold.
With that said, the US threshold also includes all lifetime gifts of over ~$18k/recipient/year, so it is a somewhat different arrangement, but the idea for the US, at least now, is that inheritance taxes should only apply to people who are actually, unquestionably, rich, not most of the middle class.
Unquestionably high thresholds can also help reduce filing burdens on many people, as preparing estate taxes can involve considerable expenses, eg, appraisals of everything in the estate. Recently being involved in a US estate that was small enough to be well under the threshold but large enough to need to file for practical reasons, the process probably took over $10k.
In the UK the inheritance tax allowance transfers to your spouse in the event of your death. For a couple passing down to children, the combined tax free allowance for inheritance tax, provided at least 350k of it is in form of a house, is one million pounds.
A lot of houses in desirable areas or cities are worth more than 500k in the UK today but very few houses have ludicrously high valuations like those in California.
It's worth saying that the increase to 500k from 325k only applies to children and grandchildren whether they be blood, adopted or step children. Inheritance taxes are also generally waived in full if you donate your estate to a charity.
That's also the case in the US, with the $12m exemption, so for a couple, the exemption is closer to $24m.
It's very much a thing in the US that people in even the upper middle class don't have to even think about.
I think $12m is too high personally, but you're right that in higher cost it living countries with larger salaries that limit might appear low. The median salary in the UK is only £28k, that's about $35k. So you only get taxed if you recieve what's essentially free money worth more than 20 years of labour on the average wage, and even then only on the amount over it.
As you say, most people will probably never have to think about it, and the people who do have to pay are still getting a big pay day. The cost of processing the estate shouldn't be too high, and they'll have 500k to figure it out.
Capital never trickles down. We have well in excess of a century of data showing this, across the world. Capital just accumulates, building mountains that never trickle. Inheritance taxes are designed to chip away at those mountains for a reason. A good reason.
In an economic system where those with substantial capital can lend it and collect interest, past a certain threshold you no longer have to participate meaningfully in the economy except as a lender. You just sit at home, collecting payments simply because you already had money. In most cases, you had it because you inherited it; this is what generational wealth is. Someone in your ancestry collected so much that you, however many generations past them, are still living purely off that money pile.
I would argue that's not, not, a good thing for society. Any society. You want your citizens to actively participate in the society. Economically, that should mean they have skin in the game, by performing some sort of labor (even if it's management or leadership, by organizing the labor of others).
If they're bad at leading, they'll not prosper. Unlike now, where they dabble in stuff like CEOs and Boards and don't really care if what they sit in on works or fails, since they have more than enough to not care or have it impact them personally in the slightest.
What benefit is there to society when you have not just the rare outlier, but many people with so much capital that they form "the capital class" and get to sit on the sidelines eating popcorn and sighing in amusement at all the little people running the rat race? People who are so privileged they're never at economic risk, never had to sweat or strain, never actually get involved in their society?
Only profit off it. Taking. Leaching from those who are involved in the society.
"But where would capital come from" I hear the cry from the capitalists. Traditionally, banks served to safeguard the deposits of a community. This is well before now, back in the olden times when community was a word that still had meaning.
Anyway, the bank would collect up those community deposits, and then lend some back out to loan applicants. They would vet the applicants, looking for signs the money would be repaid. Where they weren't sure, or just to make sure anyway, they'd get collateral to cover defaults. Or to at least try to cover defaults.
So John would want to start a timber business, and need money for saws and a truck. He'd apply, maybe get approved, and would start that business. If it thrived, he'd not only repay his loan, but go on to be a larger economic participant in his society's economy. Working, involving himself in his community. A productive member of it.
What benefit is there for the generationally wealthy to sit on their asses in their mansions, only handing out money to "someone who matters." Meaning, someone who can get past all the gatekeepers the rich use to shield themselves from the masses.
Traditional banks were involved in their communities. Not like today's banks, which are international (or at least country-wide) conglomerates just as disconnected as anyone else enjoying privilege in the capital class. The banker knew the people he serviced.
This comes with goods and bads, because people are people and will make decisions for emotional or illogical reasons sometimes, but I think it was generally better than this impersonal bullshit we have today. Where banks will manipulate you to overextend just because they need more numbers on this quarter's balance sheet. Or deny you because your business won't be profitable enough for them. Or some other disconnected "reason" that equates to them not being involved in the community they're profiting from.
People who are involved in a society are (more likely to be) good citizens. People who sit it out aren't. Someone with so much money they're not involved is not a good thing, and doesn't contribute. Being so wealthy they can live off interest, as their capital occasionally gets extended out to others who are becoming involved, that's not needed. And is actively damaging societies around the world.
Someone who makes good, I get that they might want to pass some of that largess to their descendants. I would limit it to immediate family; direct sons or daughters, and their own siblings. And I feel a couple of million is probably more than enough to be getting on with. If the kids haven't done anything of real consequence, and mom's going to write a will that'll hand them three million dollars, five million, even ten million, okay I'm fine with that.
But past that, the tax rates should start applying. I'm not saying a tech billionaire will see his entire estate confiscated upon his death, but I feel past that direct gift threshold to his kids and his own siblings, at least half of every dollar should be taxed and taken without passing to the family. Once you're into the hundreds of millions of dollar range, I feel it should be at least seventy-five percent taxation.
I don't care that any of the money might have already been taxed when it was earned. They've created a huge moneypile. Good for them. One they managed not to spend. Their kids should be involved in the economy, and it's arguable even a couple of million might mean they won't have to be. But if they're getting hundreds of millions, much less billions, not a chance they'll be meaningfully involved.
They'll just buy some mansions, yachts, fancy clothes, airfare and hotels, throw money at Taylor Swift or whoever to come play their birthday party. My understanding of economic velocity indicates that dollars circulate at several times greater magnitude in the hands of the non-capital classes, and that this velocity is considered healthy.
John goes to the bank and gets his loan. Then he orders saws and tools from the hardware store, a truck from the car dealer, and buys groceries and clothes and stuff from the other local merchants. Fuel and spare parts from the mechanic's shop. John's working, weekly, and every week he has costs and needs that he looks for in his community. He might hire some helpers, and they do the same with their money. Those merchants buy stuff that again circulates through that community several times.
One of John's collars can zip around that town four or six or ten times before it eventually lands in some far away spot. Maybe it goes to the company that made the truck, or the saw, or the truck that ships in supplies or something for the town. But before it leaves to deposit itself in that further away account, it served as economic activity in that town that benefited everyone living there.
Meanwhile, the fortunate Rockacarnie descendants might employ a construction firm for a few months to build a mansion, and hire a small house staff to beck and call for them. But they don't shop in the community. They order stuff in, from luxury brands based somewhere else. They leave and spend their money in exclusive enclaves, many owned by other capital class members.
It's healthy for society to have some levers that bust up massive accumulations of wealth. It's not healthy for society to have non-rare people of such extreme wealth that you begin to reasonably wonder if they could just decide to buy the state out. Which is where a lot of billionaires are at now. They've managed to accumulate nation-state money.
That's not good. They think it's great. Of course they do; they've got the fucking money. The rest of us ... no. Government shouldn't be in favor of it either. Except many in governments around the world have been pocketed by these obscenely wealthy people.
If you or I have a problem (with government), we can bitch online. Try to figure out how to rally people to our banner and vote for or against the issue at hand. It takes years, it's not at all guaranteed to work, and meanwhile the problem's still there.
A billionaire? Who has a problem? Pfff, he fires off a text to one of his assistants. They make arrangements, and soon enough a Senator or Representative or governor or mayor returns his call. "What can I do for you sir?" the elected official will ask. And they'll listen. They'll listen carefully. They'll likely act, and even if they don't, they'll have some damn good reasons, fall all over themselves in apology, and offer to find a way they can help.
Because they're in that wealthy person's pocket. When it's someone with billions, that person has government captured. The President of the US makes something like 200K a year. Senators, a bit less I believe. When Rockacarnie or whoever says stuff like "I could donate to your funds, I could make jobs and contracts available to you and yours ... or I could not do any of that", it tends to work. They use their money to sidestep the law.
They use it to live outside society.
If they had less of it, if they had to work harder for it, that would happen less often. Which is good for society as a whole. Some people are always going to take advantage, and pull whatever levers they can to advantage themselves, but societies should be structured to make such events outliers.
Not the norm. Which they are. And it's becoming more and more common as the capital class continues to grow. Where before it was a very small handful of names so wealthy they were well known, now we have thousands of billionaires. Half the world's wealth is controlled by the wealthiest one percent.
That is not healthy for society. Any society. Inheritance taxes are the last line of defense against generation wealth. Tax rates should already be structured to kick in far more strongly than they do today, once you get into the millions of dollars range of annual takings. But if nothing else, at the end of a billionaire's life, a big chunk of that cash should return to government, where some of it might make its way back to society.
The society that lost all that cash to the billionaire in the first place.
The hack of an author relies on this here article, by the way.
A nice snippet from there:
Oh my.
That article also relies on a review by Credit Suisse.
What neither author here mentions is that the chunk of the economy held by the lower 90% of the swedish sank by nine percentage points from two years before the inheritance tax reduction to three years after it.
The share of the upper ten, five, and one percent rose respectively by nine (big surprise in the arithmetic), eight, and six percentage points.
This is genuinely nonsense. The way to boost economic growth is using modern supply side economics – building more infrastructure and investing in education. Tax cut advocates ignore the economic harms of their tax cuts and the people they claim will go "do innovation" are already kind of doing so.