Why taxes are unfair... (using Lego to explain)

I just borrowed these 100 Lego figures from my nephews. These 100 Lego figures will represent Sweden's population. Sweden has 10 million inhabitants, which means that each Lego figure represents around 100,000 individuals.

I divided these figures into two groups: one group consisting of 10 Lego figures that represent the wealthiest 10% of Swedes, and another group consisting of 90 Lego figures that represent the rest of the population. I also borrowed these 100 Lego bricks. They will represent 100% of Sweden's wealth.

One of these Lego bricks represents 1% of the wealth in Sweden. If Sweden had no wealth inequality at all, then 10% of the Lego bricks would go to the small group and 90% would go to the big group. But Sweden does, of course, have some wealth in equality, which means that the wealthiest 10%-group will have more than 10 Lego bricks.

But how many more? Sweden is the "gold standard" of socialistic democracy. Taxes are high, but inequality is low.

It's expensive to be rich, but it's cheap to be poor. Or at least this is the story we've been told. A story I used to believe until I actually saw the data.

Here's what the data shows. The richest 10% of swedes, these 10 Lego figures to the right own 74% of Sweden's wealth while the 90%, own only 26% of the wealth. But things will get worse because if we divide this top 10% group into two by breaking out one Lego figure that will represent the very richest 1% of Swedes, then it turns out that this one fellow by himself owns 35 Lego bricks.

In other words, this group by itself, the richest 1% of Swedes, own more wealth than the bottom 90%. But what about that story that we've been told, that taxes are high in Sweden and that it's expensive to be rich in Sweden? Well, that story turns out to be misleading.

Sweden has relatively high overall taxes, but the more important question is: who in Sweden pays most of the taxes? Let's dive into this because this is important. To simplify: The state can collect taxes from individuals in four main ways.

First, the state can take out a tax when a consumer buys something. In other words, charging a tax when you, for example, buy apples at the grocery store, a consumption tax. Second, the state can tax income from work and salaries.

In other words, taking a chunk of money from your monthly paycheck. Third, the state can tax income from assets or capital. In other words, if you own shares and get dividends or when you sell an apartment, and make a profit, then the state would take a chunk of that profit.

And fourth, the state can tax people based on their wealth. In other words, simply taking a small piece of your fortune, for example, as a wealth tax, property tax, or an estate or inheritance tax. In theory, all of these four types of taxes apply to everyone, but not in practice.

Everyone needs to buy things such as food, electricity, clothes, etc. That means that everyone is affected by the consumption tax. The salary income tax is a little bit different.

It affects everyone who works and receives the salary for that work. And most of us need to work for a salary, but not everyone. Some in the highest wealth group already have so much wealth that they don't really need to work.

Or they can rely much less on salaries and much more on income from the wealth that they already own, such as interest or dividends. That's why the salary tax affects the richest group, less than the rest. Which takes us to the third tax category group capital income tax.

This tax category mainly affects these two groups that already have wealth that can create income. The same goes for taxes that are based on wealth such as property taxes, state taxes, etc. They only affect people with a lot of wealth.

In other words, consumption taxes affect everyone. Salary, income taxes mainly affect the bottom 90%. Capital income taxes and wealth taxes mainly affect the top 10%.

So if it was true that Sweden was a country where the rich pay high taxes to fund benefits for the poor, then the capital tax and the wealth tax would be high and the salary tax and the consumption tax would be low. And actually it used to be more like that in Sweden. But during the last 30 years, a silent revolution has taken place in Sweden.

Step by step in what has been referred to as a tax reform of the century, and then a number of subsequent reforms, The taxes that mainly affect the wealthy groups have been reduced or abandoned. Here are a few examples: One, the capital income tax, the one that mainly affects the wealthy groups, was made flat instead of progressive. Two, the rules have made it possible for partners in some employee-owned organizations, such as law firms, to reclassify their income from the progressive salary tax bracket to the flat capital tax bracket.

Three, the corporate tax rate, which arguably is a subcategory of the capital income tax has been lowered repeatedly. Four, essentially all wealth taxes have been abolished. First the wealth tax, then the estate tax, and then also the property tax.

These reforms that have been implemented by both left wing and right wing administrations, together constitute a silent revolution. A silent revolution that has made it surprisingly cheap to be very rich in Sweden. Here's an example: In this top 1% group, we have a partner at a Stockholm law firm.

Let's call him Bengt Jonsson. He earns around two and a half million euros per year. In the middle of this group we have the lawyer's secretary.

Let's call her Åsa Larsson. Åsa earns €36,000 per year. Or put differently: Åsa, with her salary, needs to work 70 years to earn, what her boss Bengt Jonsson, makes in one year.

But despite this overwhelming income disparity, the silent tax revolution has made it possible for Bengt Johnson to pay a smaller share of his income in taxes compared to Åsa. The silent tax revolution has given huge tax breaks for the very rich, such as Bengt Johnson, while taxes that affect the working and middle classes such as Åsa, have stayed roughly the same. Sweden is today the home of 45 (dollar) billionaires, or: four and a half billionaires per million people.

Only one country in the European Union has more billionaires, per million people. Cyprus. The famously rich country, Norway, has only two and a half billionaires per million.

Denmark, one and a half and the U. K. only three quarter of a billionaire per million.

Sweden has also become a country that kowtows to its billionaire class like few other countries. When its billionaires speak, the Swedish politicians stand to attention. In 2016 the multibillionaire Daniel Ek of Spotify publicly threatened that he would move some Spotify's business abroad unless Swedish parliament immediately adopted his suggested tax cuts.

Contrary to what many think, Spotify employs relatively few in Sweden and pays almost no corporate taxes in Sweden. Despite that, the public threat was taken very seriously and was immediately debated in Swedish Parliament. Mr Speaker, the government pursues policies that are hostile to business.

It's done to such an extent that the Spotify founders felt compelled to publish an open letter in which they threaten to leave Sweden unless something is done. Daniel was later invited to a personal meeting with Finance Minister Magdalena. Who today is Sweden's Prime Minister.

So why are Swedish politicians so afraid of the super rich? Why did the politicians push through the silent tax revolution, even though it has contributed to massive levels of wealth inequality in Sweden? One explanation is that the politicians fear tax evasion and international competition.

According to this fear, unless Sweden lowers taxes on wealth and capital, then Sweden's wealth and capital will move away from Sweden to other countries. And international tax evasion is an extremely difficult problem. But instead of bravely addressing that problem in the appropriate multilateral venues, Sweden sort of decided to become a trailblazer in the international tax race to the bottom.

With huge and devastating consequences for Swedish inequality. Thank you for watching this video which is actually the first one I'm posting on my rebranded channel: The Market Exit. I've got som really cool plans for The Market Exit so make sure that you subscribe/follow.

Also, if you really like my videos I've got a Patreon-page now patreon. com/themarketexit Have a good one, bye bye.