Raising taxes on small businesses in and of itself won’t help the rate of small-business creation — but it’s actually unlikely to hurt it that much, either. (And interestingly, taxes paid by an employer in New York are actually higher than those paid in Norway.) What would help would be a much stronger social safety net, so that someone who starts a company doesn’t need to fear a life of poverty in the event that she fails. Encouraging small businesses necessarily means encouraging failure — but the cost of failure is very high, in the US. Instead, we spend far too much time worrying about tax rates on the successful.
There is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. “It’s actually quite hard to say how tax policy affects the economy,” says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world’s highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.
You can’t blame all of Estonia’s problems on its low taxes, of course — the currency issue (Norway’s kroner is floating, while Estonia just joined the euro) is also huge. And Norway does have all that oil revenue, too. But looking at Estonia’s housing bubble and bust, one sees an economy where people are striving to get rich quick, in contrast to Norway’s culture of simply trying to be as happy and successful as possible. Which turns out to be extremely successful.
I really enjoyed that article... and it got me thinking. The problem is twofold here in the US. Norway's federal government is very close to most of the population, not 2000 miles away. The distance is not just in miles but in communication. That lack of close communication breads distrust.
Our federal government spent nearly 2,000 times the amount that Norway did in 2009... and the US is 68th out of 139 countries in government wasteful spending according to the World Economic Forum’s GCR. Norway was in the top 20 of the best bang per buck of government $ spent. The orders of magnitude of waste builds discontent and distrust.
Were our federal government to spend our funds more wisely, the citizens might not be so frustrated with social programs like Norway's.
#1 Posted by Joe Spencer, CJR on Mon 31 Jan 2011 at 01:18 PM
yet nobody asks the simple question: How much better off would Norway be if it let its people decide what to do with THEIR money instead of the state? Hmm. I imagine FAR better off. They have resources and somewhat industrious people. They would crush the measly output they have now. But nobody ever asks about opportunity costs, do they? Keep the Socialist propaganda machine fed, author. Only of a few of us will recognize for the fool you are.
#2 Posted by Steve, CJR on Mon 18 Apr 2011 at 01:34 AM
@ Steve: Who do you think is deciding what to do with the money instead of the people? Who is the state? Every 4 year we, as in any democratic country, elect our politicians to do those choices on our behalf. Who if not the people then are deciding what to do with the money?
#3 Posted by A Norwegian, CJR on Mon 30 Jul 2012 at 09:08 AM