No Taxation Without Representation: Hardships of Policymakers

There is an absolute belief over the Nordic Countries having 'too high' tax rates, which is a nightmare for an average person. Such a point of view may result in various illegal procedures taken by the greedy - there they come Tax Havens and other forms of aversion.

Taxes and Well-being: Both Personal and Economic

Taxes are said to be one of life's two certainties. In simple terms, they provide a vital contribution to state revenues and can help discourage citizens from doing harmful things, like smoking or overeating junk food.

From a more serious perspective, we pay taxes because the federal, state and municipal governments enact tax laws. That tax revenue pays for a variety of government services. When implemented overzealously, though, taxation can have unintended consequences. One supposed drawback is that when taxes are too high, they suppress entrepreneurialism, taking money away from private innovators and locking it up in public coffers instead. In the US - a society that is broadly tax-averse and home to world-changing companies like Apple and Amazon - such a view is quite popular.

How Do We Indirectly Sustain The Government and Welfare System?

Taxes are beneficial both for the government and society. Firstly, they allow us to have social welfare and social security, which are one of the most significant benefits the less privileged, homeless, and those in need enjoy without having to pay back. Taxes over the years have been used to fund social welfare packages, which are essential to humanity, especially the needy. Governments over the years have used proceeds from taxes to build health services and other institutions beneficial to the public, thereby laying a better foundation for the future generation.

Moreover, no government can sustain itself without taxes. Tax money goes a long way in funding government programs, which are needed to keep a government alive. For example, the fee is essential to help the government give us protection, build better roads and bridges, institutions, and provide social infrastructure. When being confronted with back taxes, we owe the government, people often think of ways to cut back on it. Though tax services are available for those who are delinquent in paying their taxes, it is a valuable opportunity for people who don't have possible money or funds.

Tax Havens: Wasted Opportunity

As professor Marc Berenson says, states cannot govern effectively if they cannot collect revenue. The spatial flexibility of tax haven secrecy jurisdictions is the defining characteristic that outlines them as separate entities from the traditional sovereign nation-state. It is this idiosyncratic nature that structures the unique hybrid of fiscal theft that tax havens are known for. And more than ever, their ubiquitous presence in the global economy is introducing new and old challenges for democratic nation-states.

With an estimated $9 - $21 trillion of capital sheltered in offshore tax havens, the real cost of offshore finance has an explicit effect on the fiscal self-determination of governments and their ability to raise tax revenues efficiently. Using another perspective, this amounts to around 8% of the world's financial wealth of households deposited offshore directly in tax havens. Governments on a global level lose out on $200 billion of tax revenues annually to tax havens. These statistics reflect the significant financial burden tax haven jurisdictions place on governments everywhere, and represent a tangible transfer of fiscal sovereignty from government authorities, to private capital.

How Tax Havens Pose Challenges for Democratic Choice?

For democracies, whose power derives from the electorate, the necessity to raise tax revenues is an essential component of fulfilling the social contract that binds voters to their democratic institutions. Voters recognize that tax collected is redistributed through what is understood as 'collective goods' bargained through elections, which includes public services - such as health-care and schools - alongside a robust judiciary and state administration, law and order, national autonomy, and welfare provisions.

Tax havens, through the facilitation of legal and illegal tax avoidance, deprive governments of their rightful tax revenues, forcing them to make cuts to public services, or increase tax receipts on middle and working income household to fill the revenue loss. In effect, tax havens produce a regressive distributional shift on tax burdens, where the wealthiest have access to avoid tax obligations - and free-ride on the social contract - while middle and working incomes are left to pick up the cost. OECD countries have been increasing nominal taxes on income, social security contributions, and VAT: all of which are taxes that disproportionately affect the salaried middle-class the most.

Democracies are having their tax bases eroded, or concentrated onto the middle and working class, building further financial pressure and limiting political, fiscal self-determination. Justices must act on tax havens if they wish to regain sovereignty over their budgetary authority and adequately fulfill the social contract. Allowing tax havens to continue operations will exacerbate the political choices available to democratic governments, and ignite growth in democratic distrust and harmful populism.

The Unique Nordic Taxation System - Is It Worthy?

The Scandinavian countries of Norway, Sweden, and Denmark are regularly ranked among the best places in the world to start a new business despite their high-tax environments. Well-known businesses Spotify, Just Eat, and airline Norwegian, have all emerged from this part of the world to international success.

Corporation tax, for example, is relatively low in Scandinavia and has been falling in recent years. In Denmark, it has declined from 50% in 1985 to 22% today, in line with 24% in Norway and Sweden's to be cut to 20.6% by January 2021. These figures are competitive, with the EU average 21.3% and, indeed, most other developed economies. It must be said, however, that Scandinavian countries do impose a high personal tax burden on their citizens. When local and national rates are combined, Swedes earning above SEK 662,300 (€63,717) face a 57% income tax.

Taxes in Sweden, Norway, and Denmark are progressive, but they are also flattering than in most other nations, and they are repaid in the form of personal support structures; there is a long loop of taxation returning as 'soft money,' which then feeds the entrepreneurship ecosystem.

American and Swedish Homeowners Dealing with Tax

The Nordic Taxation system is still a relevant debate topic. It is fair to say that taxes are way too high in Nordic Countries - in 2018, Sweden's tax-to-GDP ratio was 43.9%, which can be compared to a rate of 24.3% in the United States, which lives in its 'American Dream' economy.

A person in Sweden, making about $3500 per month, has an income tax of about 25-28%. The property tax has been abolished and is now a "fee" that can never be more than $900 per year. Moreover, 30% of all interest paid is deducted from taxes.

In comparison, the same person would only be taxed 7.11% income tax, which is significantly smaller in the US. However, the typical US homeowner pays about $2,279 in property taxes, according to WalletHub's data, and the tax-deductible would be 25.98%, 4.02% less than in Sweden. Besides, there is no need for medical insurance or to save up for education as all that is included in your taxes, as is elder care.

An average entrepreneur would definitely find it financially affordable to run a new business idea - according to KPMG's 'Corporate Tax Rates Table,' the corporate tax in the US is 40%, whereas it is 22% in Sweden.

Tax: a Pricey Present and a Harsh Regulator

Therefore, though Swedish people pay significant income tax, they get to enjoy free education, health care, and pension, which cannot be sustained in the US with its economic concept. Yet, there are many more factors that need to be considered in order to make a balanced answer - whether such taxes are worth it or not.

Nonetheless, tax services should be reformed to make it more flexible to reduce defaulters and tax back directly. It is also essential to know that paying our taxes makes us better citizens, helping build a stronger nation for its citizens and the future generation that will follow. Though tax evasion is considered unlawful, there are means which can be developed to resolve such acts without having to get to court.

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Up to 08.02.2020

References:

https://en.wikipedia.org/wiki/Taxation_in_the_United_States

https://www.lifehack.org/528580/the-3-primary-reasons-why-you-need-pay-taxes

https://taxfoundation.org/bernie-sanders-scandinavian-countries-taxes/

https://www.investopedia.com/articles/investing/100714/nordic-model-pros-and-cons.asp

https://www.investopedia.com/terms/t/tax-deductible-interest.asp

Chavagneux, C., Palan, R. and Murphy, R., 2010. Tax Havens: How Globalization Really Works. 1st ed. Cornell University Press.

Dietsch, P., 2016. Précis de Catching Capital - The Ethics of Tax Competition. Philosophiques, 43(1).

Murphy, R., 2017. Dirty Secrets. 1st ed. London: Verso.

Steinmo, S., 2018. The Leap Of Faith. 1st ed. Oxford University Press.

Zucman, G., 2016. Hidden Wealth Of Nations - The Scourge Of Tax Havens. 2nd ed. The University of Chicago Press.

https://www.aspokesmansaid.com/money-and-insurance/stories/content-14747/government-looks-at-ditching-insurance-tax-that-you-never-knew-you-were-paying-