Sweden is known for, among other things, Swedish meatballs, the pop group ABBA, and IKEA.
Well, here is another thing that Sweden should be recognized for: tax cuts. Yes, you heard right: tax cuts.
Sweden used to tax corporations at a 60 percent rate. Now that has come down to 26.3 percent. As noted in a recent article by the U.K.-based Spectator magazine, Sweden’s finance minister, Anders Borg, who was named the most effective finance minister in Europe by the Financial Times, got something awfully right.
Since becoming Sweden’s finance minister, [Borg’s] mission has been to pare back government. His “stimulus” was a permanent tax cut. To critics, this was fiscal lunacy—the so-called “punk tax cutting” agenda. Borg, on the other hand, thought lunacy meant repeating the economics of the 1970s and expecting a different result.… Three years on, it’s pretty clear who was right. “Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,” he says. “Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.” Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit.… He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs.
The tax cuts, combined with Sweden’s highly efficient regulatory system, have raised the Swedish economy to 21st place in the 2012 Index of Economic Freedom. By sharp contrast, the regulation-loving “Yes, We Can” U.S. Administration has driven down our economic freedom ranking over the past three years and is steering our economy into “Taxmageddon.”
Maybe it is time for President Obama to sit down with Sweden’s finance minister for a lesson on how to achieve economic recovery.