DN Debate: Sweden Doesn't Tax the Ultra-Wealthy as Much as Believed

A new study by economists Marius Ring, David Seim, and Gabriel Zucman reveals a significant disparity in tax burdens at the top of Sweden's income distribution. Contrary to the widely held belief that the wealthiest pay the most, the study indicates that the richest 5,000 households pay an average of only 15-20% of their income in taxes. This finding challenges a fundamental principle of the Swedish tax system: that those who earn more should contribute a larger proportion of their income.

The researchers explain that this low effective tax rate at the very top is not due to tax evasion or lower statutory rates. Instead, it stems from the way the wealthiest individuals derive their income primarily through ownership in companies. A substantial portion of corporate profits are retained within corporate structures, such as personal holding companies, rather than being distributed to owners as dividends. Consequently, these retained earnings do not appear on personal tax declarations as income from employment or capital gains, thus avoiding personal income tax.

This practice effectively means that the wealthiest households primarily pay corporate tax, while wage earners face municipal and state income taxes, along with employer contributions. The study refutes the common argument that these retained profits will eventually be taxed upon distribution. The research demonstrates that only a small fraction of these accumulated profits are ever distributed, with the majority being reinvested in assets like stocks and real estate over extended periods.

The authors contend that this system undermines a core tenet of taxation: that income should be taxed when it is earned. While Sweden's tax system is generally progressive for the vast majority of its citizens, this loophole at the highest income levels creates a significant deviation. The study suggests that Sweden's approach to taxing the ultra-wealthy differs markedly from international practices, even though the underlying reasons for low top-end taxation are not unique.