Did Swedish tax rate ever exceed 100%?

Question

In several places I've seen the claim that some people have at some point in history paid more than 100% taxes in Sweden.

The Economist on the Nordic Countries:

Astrid Lindgren, the inventor of Pippi Longstocking, was forced to pay more than 100% of her income in taxes

Escapist Magazine webforum:

For a few years, Sweden had a 102% tax rate on its highest income bracket. Everyone got so pissed off at the government that they were voted out of power the next election. Any socialists want to defend this nonsense?

This Straight Dope thread quotes a South African Business Report magazine that is unfortunately a broken link, but the quote is claimed to be:

Lobbying really started taking off when Astrid Lindgren, author of the world famous Pippi Longstocking books, pointed out that it was ridiculous for her to be paying accumulative tax to the tune of 105 percent.

None of the quotes are really convincing to me. Considering the ludicrosity of the idea of paying more than 100% taxes, I wonder — is this really true? Did anyone in Sweden ever pay more than 100% in income tax?

Answer 1

In her essay "Pomperipossa i Monismanien", Astrid Lindgren writes about a marginal tax rate of 102%. She does not claim an effective tax rate >100%, but gets quite close (99.75%) as she describes how only 5,000 kroner are left from a 2,000,000 income. The relevant part of the essay roughly translated:

From the first 150,000, you can keep 42,000. The rest, 108,000 goes to the welfare cake. 100% of the rest is 1,850,000 and then the 2% you did not believe existed, that is 37,000, all in all 1,995,000. Left to Pomperipossa ... 5,000.

There are no references in her essay to where these numbers come from, but she claims that the 102% comes from adding her income tax to the social fees, which have to be paid by the employer, but due to how these taxes are calculated, it is actually impossible to exceed 100% effective taxation. The employer tax is paid "on top" of the regular income (and not deducted from it) and the income tax is only calculated from the regular income. Let's assume a Swedish employer has an income of 100,000 kroner, the employer tax is 20% and the income tax is 40%. In this fictional case, the employer has to pay 20,000 kroner tax on top of the 100,000 kroner income and the employee has to pay 40,000 in income tax out of the 100,000 kroner income. The employer pays effectively 120,000 for the employee, which is left with 60,000 after paying income tax. The effective tax rate is hence 50% and not 60%, as it might seem by adding 20% employer tax and 40% income tax.

Answer 2

While you asked specifically about Sweden, the US also has marginal tax rates approaching, and even exceeding, 100% on low-income people. This is sometimes called the poverty trap.

One study found that the highest marginal tax rate in the USA was (in 1999) 109.2%, and applied to the next dollar earned by a full time employed single mothers with two kids, making $6.43 to $7.17/hour. The numbers may have changed in the last 20 years, but the fundamental issue is still the same.

https://www.epionline.org/wp-content/studies/shaviro_02-1999.pdf

Update: a few commenters pointed out that this isn't technically a tax rate. The economic effect is the same, though: a reduction in the household income. A second related consideration is that in 1999 (and in some states, today), health insurance premiums are a major factor. Health insurance premiums are effectively the same as taxes (the US is fairly unique in that this de-facto mandatory payment is paid to private corporations).

Answer 3

Sweden had at most a record of 89.4% marginal tax in 1979 (Figure 1), the same year the Swedish author Astrid Lindgren wrote her fictional essay (in which the calculations do not add up because the protagonist cannot count). Her essay prompted a change in government. Hence, the observable peak in the graph below.

Figure 1. Marginal tax over time. Labels: Percentage, year. Red: Marginal tax. Blue: Marginal tax including payroll tax (employer's contribution). Source*

_{* Except for the numbers after 2014, the source for the figure is based on Gunnar Du Rietz, Dan Johansson and Mikael Stenkula - Swedish Labor Income Taxation (1862–2013).}

Answer 4

I don't have specific information on Sweden in the 1970s, but it is indeed perfectly possible that the marginal tax rate (MTR) exceeds 100%.

(When one Googles "marginal tax rate above 100%", this question is the #3 hit. Both the above question and accepted answer seem to suggest that a MTR exceeding 100% is "ludicrous" or impossible. Which is why I felt obliged to post this answer, which addresses the more general question of whether MTR > 100% is possible, rather than the more specific question about Sweden and Astrid Lindgren in the 1970s.)

For example, according to Shaviro (1999), in the US, for certain households with an income range of $12,850-14,350, the MTR was 109.2%. What this means is that if a household earning $12,850 (before taxes and transfers) decided to work a little more in order to earn another $100, this additional work effort would actually result in a net loss of $9.20!

This may seem incredible, but is perfectly possible because of the "phasing out" of certain transfers/benefits (such as the TANF or today the EITC), where, as your income increases, the transfers/benefits you get are "phased out".

I'm not sure if today (late 2017) there are any US households who still face a MTR of over 100%, but it is well known among economists that due to the way the US tax and transfer system is constructed, the MTR can be very high.

A more recent 2012 CBO paper says the MTR ranges from 17-95%:

It is thus not at all unlikely that at some point and for certain individuals in Sweden, the MTR may have exceeded 100%.