Author Archives: Grace Kinum

Comparing Sweden and US’s Tax and Transfer Systems Effect on Inequality

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By Grace Kinum and Katie NG

Sweden believes that because everyone contributes to welfare through taxes, everyone deserves equal access to those welfare benefits(“Taxes in Sweden”). Because they want extensive benefits for everyone, this requires higher government spending, and thus, they must increase government revenue through higher taxes, which Sweden is committed to. The United States on the other hand, taxes less and is more market-driven than welfare-driven, and citizens have more responsibility to handle their healthcare, education, and retirement. Sweden’s universal welfare system and the United States’ welfare system are vastly different. The two systems have the same goal: to redistribute wealth and help people in poverty by providing them with healthcare, childcare, and other social benefits. In the United States, these programs are directed at low-income families and individuals who are considered most in need. In comparison, Sweden employs a universal system where the benefits apply to all citizens regardless of financial status. These benefits include: universal healthcare, parental leave, unemployment benefits, and housing allowances and supplements, as well as many others. While some of these benefits are also present in the United States model, the differences have largely contributed to the high standard of living in Sweden. Their emphasis on education and public access to healthcare, which is largely privatized in the United States, has contributed to a highly educated workforce and more equitable wages (OECD). It is up to governments to decide how much to tax and, therefore, how much to spend on reducing this inequality. We compare and contrast Sweden and the United States’ taxation and transfer systems and the effects on inequality to highlight the pros and cons of each system. 

In Sweden, most people pay a local tax on their annual income depending on where they live, but the average local tax rate is around 33% (“Taxes in Sweden”). In contrast, the average individual income tax in the United States is 14.5% (York). Both countries have progressive taxes, meaning that the more taxable income you make, the higher the tax rate that you pay on the marginal dollar. In Sweden, the highest tax is 52.2% (“Sweden Tax Rates and Rankings”), while the highest federal income tax in the US is 37% (Durante). This shows that while both systems have similar structures, Sweden taxes income much more on average, with higher marginal tax rates for higher incomes. 

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Impact of Sweden and US’s Social Security Systems on National Debt

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By Grace Kinum and Katie Ng

As the United States faces a looming national debt crisis, we must ask, is our social security system the most efficient? We researched how different Social Security structures may influence national debt. We focused our comparison on the United States and Sweden, two countries with similar demographic challenges but completely different structures and policies. We specifically looked at the World Bank’s data, through St.Louis FRED, to examine how these structures influenced their national debt levels using debt-to-GDP graphs. 

 In the United States, President Roosevelt implemented the Social Security Act in 1935 during the Great Depression. Social Security is a mandatory government spending program that has grown over the years and continues to expand. The system uses a pay as you go structure. Payments collected from paychecks pay for benefits immediately. 

Until recently, the collected payments exceeded the amount the government was paying out. The surplus created a Social Security trust. However, the government used it for other expenses (Glenn). According to the journal issue “The Great Social Security Debate” by Beland Daniel, this poses an issue to the United States because the fertility rate is decreasing along with the working age population. However, the population over 65, when a person is eligible to receive benefits, is increasing. The amount of people paying into the system is increasing while the number of people receiving benefits is increasing, broadening the deficit. 

The trust fund created in response to the baby boom is projected to run out in 2042. It has become increasingly clear that the debt crisis in the United States is becoming an issue as spending on programs like Social Security continues to grow. Without increasing government revenue, the large projected deficit for the upcoming fiscal year poses risks of eventual dependency on other countries to finance the United State’s debt. This dependency could lower other nations’ confidence in the United State’s fiscal stability and cause eventual economic decline. 

The Swedish Social Security system also includes a pay as you go component and a defined contribution system. In a defined contribution system money is held and invested in individual accounts meaning that the benefit amount is dependent on the success of those investments. The Swedish population faces challenges similar to those in the United States, such as declining fertility rates and an aging population. However, the defined contribution system places less financial strain on the Swedish government than the defined benefit model in the United States which impacts national debt differently. 

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