Sweden’s Corporate Rate is 13 Points Lower than Ours, and Going Lower
August 21, 2012
Swedish Prime Minister Fredrik Reinfeldt has called for a cut in corporate taxes to boost Sweden's competitiveness.
In addition to the already planned corporate tax cut from 26.3% to 25.3% due to take effect from January 1, 2013, the ruling centre-right coalition is said to be planning a decrease in the corporate tax rate further down to 24%, according to national newspaper Svenska Dagbladet.
“It was still true a few years ago that we had a low and competitive corporate tax rate. Today, this is not true any more”, said Reinfeldt.
Sweden has traditionally been one of the most highly taxed countries in the world due to its generous welfare system, but the country has been supporting its economic competitiveness and its export-led model over the past few decades by loosening corporate taxation while keeping individual income taxes and indirect taxes very high. As a result, Sweden's corporate tax has been set slightly lower than the average among developed nations.
Reinfeldt said it would be necessary to cut corporate taxes beyond the expected revenue rise deriving from the planned tightening of anti-avoidance rules, especially as Sweden's economy has shown resilience during the first half of 2012, growing by 1.4% during the second quarter alone, bringing the year over year figure to 2.3%.
However, the recent economic resilience is not extraordinary by Swedish standards as the average annual growth rate throughout the last decade has been close to 4%. Reinfeldt's plans are also motivated by his right-wing Moderate party's currently weakened position in the polls, which show the left-wing Social Democratic party ahead. As a result, Reinfeldt's move would also be aimed at restoring his party's popularity ahead of the 2014 general elections.
The government has delayed the tax cuts promised during the 2010 electoral campaign because the ruling coalition's stance on tax cuts in Sweden has been more cautious than initially expected, due to the developments in the eurozone and the underlying risks potentially weighing on the Swedish economy.
The U.S. has a corporate tax rate of 39.1 percent, including federal and state taxes, which is the highest in the industrialized world. The chart below shows the U.S. corporate rate and the average rate among the 34 industrialized countries that make up the Organization for Economic Cooperation and Development (OECD). The world is obviously going the way of Sweden, while the U.S. sits still at a rate that is 14 points higher than the OECD average.
Follow William McBride on Twitter @EconoWill