Quick, what countries have the most billionaires? Not surprisingly the United States leads the pack. What you may not have thought of as second in line is China. Yes, that China. That Communist China. Sacre bleu! How can that be? Second in line after the United States. This is not too strange because both the US and China have large populations, about 330 million and 1.2 billion people respectively.
A better measure is billionaires per capita and now the ratings are drastically different. On this basis, we drop to thirteenth. Among the countries that top us are several Scandinavian countries such as Norway, Sweden, and Iceland. These countries are frequently referred to as socialist countries. They all have relatively high tax rates, yet they best us in terms of the number of super-rich. So much for the “only in America” trope.
The aforementioned countries with high tax rates have oodles of super-rich and at the same time provide outstanding social services including universal healthcare, education including higher education, parental leave, child and elder care, retirement, and vacation time just to name a few.
The OECD countries (Organization for Economic Cooperation and Development) have an average tax rate (revenue as a fraction of GDP) of thirty-four percent. Sweden has a rate of forty-three percent and the United States a meager twenty-four percent (total taxes for US, state, and local.) Sweden, with a tax rate nearly twice that of the United States has twice as many billionaires. Norway, with a whopping tax rate per GDP of fifty-five percent, has more billionaires. At the same time these Scandinavian countries with more billionaires than we, have a more equitable distribution of resources within the country as indicated by the GINI index.
Conventional wisdom would suggest that low taxes should produce more super-rich, but that is not necessarily the case when OECD countries are compared. How about among the states? New Jersey has the highest total tax rate in the country, yet has the second-highest number of millionaires. Mississippi has the least number of millionaires and a relatively low tax rate. There are of course exceptions. Alaska has the tenth highest number of millionaires but a very low tax rate. This can be explained by the oil wealth of the state.
In the last analysis, it appears that lower taxes don’t produce more wealth, in fact just the opposite is true. Countries with higher taxes that are dedicated to social welfare programs (raising all the boats so to speak) produce greater wealth.
Bob Allen is Emeritus Professor of Chemistry, Arkansas Tech University.