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A s the progressive movement gains steam in America and the emergence of a single-payer health care system, tuition-free college, and an infrastructure-building package becomes more likely, many Conservatives on the far-right are asking: How are we going to pay for it?
The short answer is fairly simple: through taxation. That is, of course, the implication of any public program. It’s how such initiatives are funded in other nations that implement them. Sen. Bernie Sanders often likes to discuss the systems in Scandinavian countries (Denmark, Norway, Sweden, and Finland) as models for the United States, but what does a comparison of those countries’ results to the U.S. look like?
Comparing metrics of economic health
On poverty rates, Scandinavian countries tend to do better than the United States. Based on data from 2013–2017, the Organisation for Economic Co-operation and Development (OECD) estimated that Denmark, Norway, Sweden, and Finland have poverty rates below 10%, while the U.S. poverty rate was near 18%—among the highest of all OECD countries.
Nonetheless, Scandinavian countries do worse on employment despite having better poverty rates. The United States and Norway were about tied on long-term unemployment, just over 15%, but Sweden, Denmark, and Finland were all higher, with Finland’s rate being about 25%.
As for education, the Australian Institute of Business puts Denmark, Norway, and Finland ahead of the United States in a listing of most educated countries. All these countries fall in the top 10, however. Sweden was not ranked as highly.
When it comes to infant mortality, Norway, Sweden, and Finland have among the lowest infant mortality rates in the world at about 2.5% each, according to the CIA World Factbook. Denmark fares worse at 4%, but the United States is the lowest of the group at 5.8%.
The Scandinavian countries are, in fact, capitalist. They just have well-funded social programs.
Scandinavian countries tend to do better on life expectancy as well. Swedes and Norwegians can expect to live to about 82. Finns are expected to live to about 81, while Americans and Danes (to a lesser degree) may live to be 80.
Though happiness might seem like a pointless, silly measure, it’s actually what economics tries to determine. The concept of a dollar, for example, is that it represents a unit of happiness to be traded. The World Happiness Report announced that Denmark, Finland, and Norway are three of the four happiest countries in the world, with Sweden holding ninth place. The United States sits at 18th.
The gross domestic product (GDP), or market value of goods and services a country produces, is where the United States does slightly better on growth, at 2.9%, according to projections from the International Monetary Fund. Sweden and Finland were at 2.6%, Norway was at 2.1%, and Denmark (the lowest) sits at 2% growth.
Research suggests that social mobility is higher in the Scandinavian countries. By measuring intergenerational income elasticity, the prevalence for change in incomes between parents and children, we can see that Scandinavian citizens are less likely to reflect the wealth of their parents than U.S. citizens, meaning that one’s status can be more reflective of the work they put into their life.
Remember, too, that this isn’t an argument between capitalism and socialism. The Scandinavian countries are, in fact, capitalist. They just have well-funded social programs. The overall impact appears to be that Scandinavians have economically advantageous systems. While the United States may lead on a measure of GDP growth, currently and even historically, GDP growth means little if it does not contribute to improved standards of living for those in a nation’s economy, and Scandinavians generally enjoy a lead over American on various standards cited here.
It appears that the Scandinavian system is worth it. The question, however, remains: How do we pay for it? That answer can be split two ways—taxation and wealth creation.
In 2015, Kyle Pomerleau wrote an article about the Scandinavian tax system. He noted that, for one, income taxes in Scandinavia are not higher and also are rather flat, meaning that it is not merely “the 1%” funding these efforts. Everyone chips in—and maybe that is easier to do when the countries have lower rates of poverty and more social mobility. Overall, these countries raise quite a bit more of their GDP—at least 19% and as high as 26%—in taxes, while the United States only rakes in 15%.
These countries also use a hefty “value-added tax system,” where goods are taxed at each level of production, not merely upon sale. A VAT system is not used much in the United States and is actually considered a regressive form of taxation. Interestingly, corporate tax rates are actually lower in Scandinavia, and perhaps this is a good way not to discourage investments. Also, oddly, estate taxes there are minuscule.
Overall, we see that the way that Scandinavians tax themselves is not quite as focused on the hyper-rich as Sen. Sanders’ proposals are. Does this mean that the United States should not only raise its taxes but make them flatter?
The United States certainly possesses the wealth to…pay for these programs.
In the short-term, it’s probably not that simple. Given that more inequality exists in the United States (which is to say that income distribution is less flat), a flatter income tax system would not align well. When added to a VAT system, which taxes commerce more heavily, a direct leap would probably have a rough start. A focus on narrowing the gap of income inequality through progressive taxation might be more effective at first. Additionally, a large portion of taxation for health care in these countries comes from city governments. The United States might be too large for that level of local control over the process to be effective.
Nevertheless, the main takeaway is that Scandinavians acquire the funds for these programs through a more rigorous system of taxation. This means that, if the United States were to mimic these nations, the government would have to demand more money from its people in a broad sense. The United States certainly possesses the wealth to do that, and in that sense, we can definitely pay for these programs. What is important, however, is determining the trade-offs in such a move.
The main justification for any public program is that it meet a collective demand, often through the creation of new wealth. This comes by either adding something to the economy or reducing loss, and we have reason to believe that a bit of both occur.
In health care, for example, new wealth emerges from increased productivity of workers. A study showed that improving the health of employees over the course of a year increased productivity by £3.73 (about $4.81) for every £1 spent (about $1.29). If we map that effect onto an entire nation, the gains at high volume can become enormous, and that just focuses on per-day productivity. Healthier people can also work for longer periods of their lives, which heightens the potential for new wealth.
Infrastructure creates new wealth in two ways. In the short-term, the thousands of people put to work to develop the new roads, bridges, and subways receive pay from the government, which creates more liquidity in the economy and spurs commerce. When the construction is done, infrastructure either reduces the costs of commercial transportation or creates new opportunities for commerce altogether. A report in 1996, reflecting the benefits of the U.S. Interstate Highway System, determined that $6 in economic output were gained for every $1 committed to the highway. Research on urban rail systems, meanwhile, indicates that every 10¢ per capita spent on transit leads to about a $45 million increase in wages for a metropolitan area.
About $500 billion would be saved if health care were streamlined under a public system. This would be enough to cover the 30 million uninsured Americans.
The same is true of education. Data show that failing to complete high school results in lower earnings at the aggregate, meaning less revenue to be taxed. A joint report by the Education Department and Treasury Department in 2012 indicated that college degrees (and higher degrees) led to higher incomes for their holders. This is because many of the high-demand occupations, such as in STEM fields, require advanced education. Beyond that, more educated citizens can innovate better for their national economy and give a country an entrepreneurial advantage.
There are savings that occur from public programs. Public transit, for one, saves about $11 billion on gasoline per year. Households that use public transportation average about $8,000 in annual savings as well. When we focus on health care, several administrative costs disappear under a single public system. About $500 billion would be saved if health care were streamlined under a public system. This would be enough to cover the 30 million uninsured Americans. Moreover, with more coverage, the focus could shift to preventive care, which creates savings across the board.
The average person in the United States spends about $10,200 per year on health care. Danes only spend about $6,300 per year, and Finns spend just only just over $4,000. As percentages of GDP, these account for 17%, 10%, and 9%, respectively. As such, we can see that higher taxes do not necessarily lead to higher costs, especially if they have the benefit of eliminating private waste, while also covering everyone. If we combine taxation and health care costs as a percentage of GDP, that accounts for at least 28% in America. If we add infrastructure and the costs of higher education, that number gets closer to 29%. If you recall, the highest number for tax revenues in Scandinavian countries was about 26% and 19% at the lowest.
I n light of all this, people in the U.S. need to do some soul-searching. Is it really worth it to spend more privately, if it means getting less? Is thumbing your nose at higher taxes worth it if general costs are still higher than the taxes would be? We can definitely pay for a lot of these programs, if we just look at the math and understand the programs are cheaper than we are led to believe and would be cheaper than anything we currently do.
Scandinavians fund these efforts differently than what Sanders would propose, but at the end of the day, he is right on one thing: There is no excuse for the United States to continue to lag behind like this when it absolutely has the means to improve.