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I heard that Sweden's high income tax actually incentivised startups, because the only way to get _seriously_ wealthy was through capital gains. Does anybody k
by archydeb 4y ago
I heard that Sweden's high income tax actually incentivised startups, because the only way to get _seriously_ wealthy was through capital gains.
Does anybody know whether that's true?
If so, it really undermines the narrative that is somewhat dominant in Britain, that high income tax will disincentivize entrepreneurship and innovation etc etc
- codethief 4y agoNo idea about the situation in Sweden but generally speaking I'd say it depends a lot on whether "income" in "income tax" also includes capital gains.
- Jolter 4y agoIt does not, in Sweden.
- geysersam 4y agoDon't know any country where it does. In Sweden it certainly doesn't.
- LtWorf 4y agoIt doesn't but they are taxed the second you sell them off. So cool… you're rich but if you actually want to use the money it is taxed.
- pazx 4y agoIncome tax and capital gains tax are two different things and two different rules sets. In Sweden income tax is max ~56% while max capital gains is 30%.
- kevinak 4y agoActually... Sweden has a large loophole for extremely rich people. Stick it all in a "Capital Insurance" product and pay a low yearly tax on the amount, rather than the gains. It kind of makes Sweden into a low tax haven if you're only living off capital.
- teknolog 4y agoIt is broadly true that you cannot accumulate wealth from salary income as the salary bands are massively compressed.
- ramraj07 4y agoEven without the tax angle isn’t this generally true? Except in very rare cases of becoming CEO of an MNC or something.
- cpach 4y agoYou have a point – however, do you know what SWEs in the big US cities earn theses days, working for “FAANG”? (Or Stripe, Square, etc.) It’s not very uncommon to have a yearly compensation of 500-600k or more (USD). In Sweden, very very few SWEs earn more than 80k/year.
- pazx 4y agoI live in Sweden and most SWEs I know earn 6000usd or 72k/year after only 5 years. Earning above 100k is not uncommon.
- ramraj07 4y agoI don’t know if we agree on what the definition of massively rich is. Given that 1% of US people are millionaires, my definition of massively rich is 50MM plus net worth.
- deleted 4y ago[deleted]
- junofan 4y agoThe only thing that incentivizes startups is access to capital. You need rich people.
- missedthecue 4y agoExactly. How many tech startups today are funded directly or indirectly by successful founders and tech workers? Is 90% understating it?
- varispeed 4y agoThis grinds my gears as this attitude essentially reinforces the serfdom in the society. If you are born into a working class you will remain working class. The salaries are taxed in a way that a worker cannot easily save money to start their own business, they need to beg bankers for a loan or go cap in hand to the rich people - and oh be sure they'll have to give shares to the business. In the UK we used to have a nice route for workers to build up their start up fund - basically you could create a company and sell your (and your co-founders) services to other companies. You could pay yourself a small salary or dividend or both to be able to cover rent, bills and day to day outgoings and in a year or two you could have amassed sizeable capital while gaining expertise. As an example, if you wanted to sell Kubernetes based SaaS product, you could have offered Kubernetes maintenance services etc and learn what kind of pain points corporations have and then work on incorporating solutions into your start up offering. Problem is that government believed it was a tax avoidance and closed this route (IR35). Now you can still offer services, but you are getting taxed on revenue which has no advantage over just being an employee and taking forever to save money.
- dazc 4y agoThe Gov't believed it was tax avoidance for the simple reason that it was. It is still possible to build a business in the UK the old fashioned way of working hard and making personal sacrifices.
- varispeed 4y agoGovernment was never able to prove it was a tax avoidance. If you wanted to draw all the money from the company you would pay broadly the same tax as an employee. The only angle that one may consider as avoidance was that the client wouldn't have to pay employer's NI - but given the freelancer services were charging considerably more than employees, that wasn't an incentive either and they weren't employees, so it shouldn't apply either. Basically tax avoidance angle is a red herring and based on research it was the best carrier for this law to gain public acceptance plus it could paint freelancers in a bad light. The real reason this was adopted, was that big consultancies had a hard time competing with freelancers - they offered better price and expertise and as it happens a lot of government members and party members have vested interest in these corporations.
- INTPenis 4y agoI'm just a layman when it comes to all that but as someone who was raised in Sweden and lived here all my life I feel like the safety net that the government provides plays a huge role in people feeling free to start their own business, or their own band. When you know you won't become homeless due to a failed venture it becomes easier to take a chance on something.
- kkielhofner 4y agoThis is very accurate. While other Nordic and European countries also have strong social safety nets (certainly compared to the US) Sweden seems to have captured something special. For a country with roughly the population of the Chicago metropolitan area Sweden punches well above their weight in everything from startups to pop culture influence[0] to the point where the referenced article calls Sweden "the unofficial capital of pop music". Turns out when you have a safety net it's a lot easier to make the jump to forming your own startup vs the US where if you leave your job the first step is to figure out how to get healthcare (and pay for it). In the US you're much closer to complete ruin if you leave a job to pursue your wild startup idea. [0] - https://www.thrillist.com/entertainment/nation/this-is-pop-netflix-everything-we-learned https://www.thrillist.com/entertainment/nation/this-is-pop-n...
- RestlessMind 4y ago> Turns out when you have a safety net it's a lot easier to make the jump to forming your own startup I think you are overindexing on the safety net part. Here[1] is a chart of startups per capita in Europe. Looking at "startups per 1M inhabitants", Estonia has 1100+ while Germany has only 250 in spite of having a great safety net (apparently). Same article also shows that Sweden has 1769EUR VC funding per capita, when Finland has only 854EUR and Denmark/Norway don't even show up on the chart. All 4 countries have similar cultures, no? And let's not even talk about Saudi Arabia which spends a lot on social safety net but I haven't seen much entrepreneurial or artistic exports from that country (oil doesn't count). I believe "forming your own startup" requires a lot of ingredients - ecosystem or flywheel (see: Silicon Valley), funding for risky bets (see: USA), a bit of hunger, education levels, culture of risk taking etc etc. [1]
- catears 4y agoMy understanding, as a Swedish native, is that income from labour is taxed rather high (i think 70%+ for income over a certain amount). However, capital gains are taxed comparatively low. The two most common ways tax either 30% of the profit, or 1-3% of the annual total value (ish, I don't know the exact numbers and they are probably changing from year to year). How the incentives play out you have to ask someone else about tough ;) Edit: Got curious and looked up income tax. Turns out I was slightly wrong, Income is regularly taxed around 55% for really high income, but if you also count in VAT ("moms" in swedish) you get ~70% taxation.
- perbu 4y agoIt is pretty interesting to see, though. Sweden has a lot of "old money" and they seem to quite happy letting then keep it.
- jacobr 4y agoThe Swedish welfare state involved a lot of compromise and give and take. The system benefits workers in some areas and capital owners in others.
- alkonaut 4y agoTop marginal rate of tax paid by the employer is 55.5%. Employer pays some payroll taxes too but those usually aren’t included when comparing income tax. As a rule of thumb it costs the employer $1.50 to pay someone $1
- hoschicz 4y agoYou can't add 55+25 like that; VAT is 25 % of the 45 % left over. So maximum total marginal tax rate is 66.25 %
- jollybean 4y agoIt's still uncompromisingly brutal in the minds of most people. The 'Swede' I know best (Doctor) left for that reason. The argument most often used is 'But I Get Good Services' - which I'm suspicious of because 1) well, you could just keep the money and spend on the services you want, instead of the services the state chooses for you and 2) there's incredible efficiency in private institutions. I don't see any government in the world ever making a good 'Spotify'. Despite it's flaws, it's nice to have 'music when I want it'. In short, probably thinks like 'Healthcare for Everyone' (though maybe not socialized entirely) and better retirement comp. are really good ideas and should be universally applied (much as we now know that 'central economic planning soviet style' is a bad idea). But 2/3's to the State is just a gigantic amount. Even a small adjustment such as '15% must go towards your Healthcare Insurance' and then let people pick plans, or, 10% must go to a 'Retirement Savings Plan' (of which some of it cannot be withdrawn until 65 and some of it pooled) might even be beneficial. I think that would start to create some social nudging functions (i.e. payment for Healthcare) while being a bit more fair (i.e. service quality sometimes proportional to money put in). And maybe the 66% kicks in, but at some much, much higher rate, like over 1M in income. Finally, we don't seem to account for just 'organizational intelligence' which I think is the biggest difference. When I see the lunches Swedish kids get I don't think 'they are rich' I think 'they are smart'. Lunches, esp. mostly vegetables do not have to be expensive, I think the whole 'burgers and tater tots' you see in USA is just stupid, lazy thinking. Just being a bit creative with the menu, a bit conscientious with the process, and esp. having children help quite a bit would help. Any school kid can do 'something' and past age 8 they can wash veggies, help clean up, sweep. They do this in Japan for a lot of things, why can't we? I suggest children can even learn to prepare certain kids of veggies responsibly. Since a lot of education is kind of just 'daycare' why not give them some responsibilities as well? I mean, it's like a 'win win'. The remaining meal functions can be done by a staff. We can't avoid inherent costs in things but I suggest there is enormous upside in being intelligent about things in 'whatever' systems: Drugs, Incarceration etc.. My minimal exposure to Swedish startups is that they have way better communications - they present their concepts using language, visuals, way ahead of others. This despite Swedish formal education system flailing a little bit behind others (that's a complicated thing). p All of that said I 100% agree that 'safety net' will improve the likelihood of participation 'early stage' startups, not sure what it means beyond that stage.
- marsven_422 4y ago
- pazx 4y agoIncome tax is 30-33% up to ~4500usd/month, for everything above it is 50-55%. Capital income tax is 20-30% depending on the type of capital.
- dazc 4y agoLook at Ireland, low corporation tax (we won't even force you to pay it at all if you're big enough) and a booming economy - producing feck all. If it wasn't low taxes that achieved this then what was it?
- andsoitis 4y agoTaxes are a part of the story, but neither the whole story nor sufficient on its own. There are other countries with lower corporate taxes, but with a worse economy. Other things it’s got going for it is a highly educated English-speaking population, geographically favorable location between Europe and the US, which, together with the favorable tax policies, makes Ireland especially useful for American tech and pharmaceutical companies.
- alkonaut 4y agoI don’t know anyone who started a business and did so to be wealthy to be honest. Sure it’s always a nice side effect but I think all the people I know who started businesses would answer “yes” to the question “do you want to do this even if you never make more money than as an employee”.
- petestream 4y agoI would say it is true but more the entire environment. ~15 years ago in Sweden it was relatively easy to become middle class. It was for its time accessible and affordable to have things like education, housing and a family. At the same time it was relatively hard to become upper-middle class because of progressive income taxes, career paths and overall competition. That meant there were a relatively large number of people capable of starting and joining startups with low opportunity cost of doing so. Which also meant there were more startups who were interested in building something that is viable long-term rather than to cash out quickly. (This isn't really true anymore but that is a different story)
- Gravityloss 4y agoStock options are taxed as salary income when excercised though.