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Scandinavia treats its 1% even better than the US

Reuters/POOL New
  • Allison Schrager
By Allison Schrager


Published This article is more than 2 years old.

Young voters in America are growing skeptical of their country’s brand of capitalism. Their enthusiasm for Bernie Sanders suggests they crave something different, a romanticized version of Nordic socialism, with its generous welfare state and high tax rates.

It is true that Nordic countries have a more equal distribution of wealth and income. They also have more economic mobility than the US. But what we admire about Nordic countries frays when you dig into their wealthiest 1%.

Economists Simon Halphen, Wojciech Kopczuk, and Claus Thustrup Kreiner studied wealth among Danes (pdf). They observed that the extraordinary mobility found at lower levels disappears once you get into the very top of the wealth distribution. If you are born into a family in the top 1% of wealth, odds are pretty good, you’ll end up there too. They estimate having parents in the 1% makes you 18 times more likely to be in the top 1% yourself; the odds double if your grandparents and parents were also in the 1%. Studies also find that if a man’s father was not in the 0.1% he can forget about reaching the 0.1% in Sweden. The very wealthy ranks in Sweden tend to be dominated by the same family dynasties each generation.

Nordic tax policy protects the wealthiest 1% by placing very high taxes on income and, by American standards, modest taxes on large inheritances. The high income taxes make it harder for a successful Scandinavian entrepreneur to earn his way into the top 1%. The low inheritance taxes make it relatively easy to pass on large estates. In America, income taxes are lower, and estate taxes higher on wealthy fortunes are higher.

Tax policy may make it harder for rich Americans to maintain a spot in the top 1% generation after generation. It is hard to make a simple comparison between Nordic countries because American tax returns don’t include wealth holdings until people die and taxes are paid on their estates. But there is some evidence the richest Americans are more likely to be self-made entrepreneurs rather than members of family dynasties.

A study by Kopczuk and Lena Edlund looked at estate tax data and observed that there are fewer women in the top 0.01% than in the 1960s. They argue that this is evidence of more self-made people cracking the 0.01% because heirs are equally likely to be male or female, but successful entrepreneurs tend to be male.

The turnover in America’s top 0.01% comes from some combination of new entrepreneurs accumulating more wealth than established wealthy families, multiple heirs dividing fortunes, and estate taxes eroding family fortunes (though Kopczuk cautions there’s a lot of tax evasion when it comes to inheritances).

Since most of the population lives outside the 1%, the mobility among the poor and middle class in Scandinavia is enviable and probably more important. But if you think the biggest threat to the economy is wealth concentration among the 1% being limited to a few powerful families, Scandinavia is not the utopia people make it out to be.

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