An Economist’s Fact-Based Response to Polarizing Tax Claims

A social democratic think tank recently sought to fuel polarization between low- and high-income earners by claiming that the government’s decision to slightly ease tax progression would only benefit the very highest earners. To support this argument, the think tank used euro-denominated comparisons, which naturally make the differences appear large—especially between the very top earners and the rest of the population.

This narrative was swallowed whole by Finland’s two biggest media outlets—namely the publicly owned Yleisradio and the privately owned Helsingin Sanomat. Both repeated the claims without any critical scrutiny, effectively acting as a loudspeaker for a politically aligned left-wing think tank. Their coverage was soon challenged by Sami Pakarinen, Chief Economist of the Confederation of Finnish Industries, who presented a series of facts on social media.

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According to Pakarinen, “Finland will lower its top marginal tax rate at the beginning of next year from 58% to 52%. This has been recommended for years, as Finland’s top rates are among the very highest in the world.”

He elaborated by noting: “In 2017, the IMF recommended that the top marginal rate should be capped at 44%. The OECD average is around 35%. Even after the reform, Finland remains well above this ceiling.”

Pakarinen also reminded readers that “the top 14% of earners pay 49% of all income taxes. When it comes to net public transfers, the top decile shoulders the lion’s share.” In fact, he emphasized that “Finland redistributes income through taxation more than any other OECD country.”

Furthermore, contrary to the social democratic think tank’s claims, he argued that “the self-financing ratio of the tax cut is very likely above 100%. In other words, by lowering taxes, the state will actually collect more revenue. Recent research points in this direction, and there is finally a growing consensus among economists.”

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For international readers, it is worth noting that research shows the majority of journalism students in Finland lean toward the green-left. Perhaps this helps to explain why Finland’s otherwise exceptionally free press—at least in international comparison—can nevertheless appear remarkably one-sided. In practice, it often leans toward planned-economy thinking and value liberalism, as this very case illustrates.

As a result of all this, one is entitled to ask: what exactly are Yleisradio and Helsingin Sanomat aiming at by repeating the left’s polarizing and misleading claims as if they were facts? A society divided along American lines—or even outright revolution?

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Immigration is an asset in the USA, but in Europe, it's just a burden

People criticize immigration, but it is a source of economic growth, said Michael C. Burda, an economics professor at Humboldt University in Berlin.

So, does this mean that we should accept all immigrants trying to come to Finland? And at least keep the eastern border open to grow our economy?

No, because the professor continued his thought by noting that people coming to the United States do not receive welfare benefits, it is not possible. It is very difficult to get money for free in the United States.

In other words, immigration alone will not save Europe's economy; in addition, newcomers should be integrated into a productive economy by preventing them from having an alternative lifestyle offered by European social democracy.

And this, precisely this, is the reason why humanitarian immigration is only a burden for Europe and not the asset one would hope for.

* * *

Yesterday's terrorist attack on the Moscow concert hall was exceptionally bloody, claiming 60 lives and injuring a staggering 145. The perpetrator has identified itself as the Islamic ISIS organization, though its motives remain unclear.

It is also unknown whether the perpetrators were born in Russia, had migrated there, or had simply entered the country for the purpose of carrying out the attack. However, US intelligence had prior knowledge that a terrorist attack was imminent in Russia.

In this context, it is important to emphasize that terrorist attacks are never acceptable, and there is no reason to rejoice even when they target the dictatorship led by Putin. Instead, it is concerning to note the resurgence of the ISIS organization, the consequences of which will undoubtedly be felt sooner or later in Western democracies due to the human rights and immigration policies pursued therein.

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Does China prove the superiority of market economy?

The economy and standard of living in China was ruined by the Great Proletarian Cultural Revolution ordered by the Chairman Mao in 1960´s. After the death of the Chairman, the economic direction was changed in China towards the current system, where communistic dictatorship is combined with a market economy. 

That has led to great progress in the most populous country of the world. And now the statistics tell the Gross National Income of China is soon going to reach a level of $12 000 per capita. 

That means Chinese people are reaching the level of citizens of Costa Rica or Venezuela and has already passed over e.g. Russians, Malaysians, Bulgarians or Turkish. And even the standard of living in countries like Chile, Uruguay or Hungary will be reached in the next ten years - provided that the growth rate of China corresponds to the development of the last twenty years.

At the same time, China has become the second biggest economy in the world - and the difference to USA is narrowing quickly. The difference in GDI per capita between the two is, however, about sixfold - and therefore it very clear that the difference in the welfare of the two biggest economies of the world will be huge for decades. 

Taken the facts above, it is very clear that even a communistic rule may produce economic welfare despite the horrific examples provided by the Soviet Union or - more recently - Venezuela. The key to that is, however, to give up on the economic principles of Karl Marx and Friedrich Engels - and definitely avoiding Leninism as a means to apply their ideas. 

Instead it might be worth noting that the example provided by Xi Jinpin´s China seems to prove the superiority of market economy over socialism. And it drives me to consider, if more strict market economy should be preferred over the milder versions of socialism - such as Nordic social democracy? 

After all, considering other aspects usually thought to advance economy are excellent in the Nordic countries. The freedom of speech is among the best in the world, democracy is challenged in no ways and people are highly educated. Despite those facts, their economies have become more or less stagnated (Finland, Sweden, Denmark, Norway) during the last decade or so, according to GNI.

For me, these notions will be of extreme interest in the becoming years. And therefore I intend to follow future developments in the Chinese economy - and make conclusions about the contributions of market economy and social democracy by comparing future developments in China and the Nordic countries. 

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