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?

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    Your question and your citations aren't necessarily talking about the same thing - you're asking about a > 100% effective tax rate, but your citations are either unclear or referencing a >100% marginal tax rate. There's a huuuge difference. – Tacroy Mar 5 '13 at 1:00
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    @Tacroy: Agreed, but I think an answer showing >100% marginal rate in particular circumstances would be sufficient to address the question. – Oddthinking Mar 5 '13 at 1:03
  • I think I've read a similar claim (but possibly 400%) in the Guiness Book of Records. – Andrew Grimm Mar 5 '13 at 1:53
  • IIRC it was over 100% marginal tax. According to her satirical text she wrote, she payed more tax than she got. expressen.se/noje/pomperipossa-i-monismanien It's in swedish but well... – Wertilq Mar 5 '13 at 9:36
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    One should keep in mind that Swedish taxes fluctuate according to your earnings. They won't tax the regular, average employee those ludicrous amounts - instead, those taxes are reserved for the wealthy. I would gladly pay those high taxes if I could live in an environment like Sweden. – T. Sar Nov 27 '17 at 10:12
up vote 28 down vote accepted

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.

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    Reading on wikipedia, the current Stadsminister in Sweden of that time, said her having 102% taxation was just bu**sh**, and that she is bad at maths. She responded saying, he should complain about the maths of Skatteverket (the guys handling taxation stuff), since it was them that told her that. – Wertilq Mar 6 '13 at 14:57
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    @Wertilq: I realize that, but the only reasonable interpretation of the very casual language in her essay is that she claims that her income tax (inkomstskatt) and the employer tax (arbetsgivaravgift or egenavgift) add up to 102%. As I explained in my answer, this is mathematically impossible if the income tax itself is less than 100%. Sweden had its highest marginal income tax with 87% in 1979. She may of course have been liable to pay other taxes like wealth tax or property tax, but these are not directly related to income and are not mentioned in her text. – Tor-Einar Jarnbjo Mar 6 '13 at 15:45
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    Rates apparently >100% on current income can happen if some tax liability is time delayed compared to income. So total tax this year over income this year could easily be >100% if tax depends on some function of past income. – matt_black Mar 6 '13 at 19:03
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    @Tor-EinarJarnbjo - there's an economics argument to be made here that employer paid tax effectively means lower salary/income for employee; and thus the net effect is to lower their income directly even if technically is subtracted from employer. – user5341 Nov 27 '17 at 20:45
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    @user5341 I don't think the "economics argument" has very much to do with this. The employer paid tax is likely not considered taxable income any more, so if you have, say, a 90% tax rate after a 90% employer paid tax, then yes, you'll get less money, but your overall tax rate won't go over 100%. It'll be 99%, not 180% – Alpha3031 Nov 28 '17 at 6:32

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).

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    Is that because the next dollar earned makes them lose access to certain benefits? – gerrit Feb 8 at 1:16
  • incorrect. There is no income tax rate even approaching 100% in the US. There is no "poverty trap". The closest you can come is being close to a change in tax bracket that reduces government benefits when exceeded to the point where if the increase in income is marginal you may end up earning less than before the increase after taxes. But that doesn't mean you're paying more than 100% of your income in taxes. – jwenting Feb 12 at 10:26
  • @gerrit yes, it's the same in the Netherlands. And was worse before the ziekenfondsgrens was abandoned. I once had to decline a raise because it would have put me over that boundary, but not enough to cover the increased health insurance premiums that'd resort. My then-employer changed my pay scale so I'd end up getting more after taxes anyway :) – jwenting Feb 12 at 10:28
  • @jwenting I'm aware of the armoedeval. Seems like a good reason to consider replacing all those benefits by a Universal basic income, which would eliminate at least that problem. But that problem, as far as I'm aware, is only relevant for low income households/individuals, which certainly did not include Astrid Lindgren. – gerrit Feb 12 at 11:05
  • @gerrit it wasn't relevant to her as she really did end up paying over 100% of her income in her highest income bracket. The people from Abba had the same thing happening, as did quite a few Swedish executives. It caused a major move of these people to other countries, at least on paper. So they didn't pay over 100% TOTAL tax, but over their highest bracket. – jwenting Feb 12 at 11:21

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.

Marginal tax over time 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).

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!

enter image description here

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%:

enter image description here

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

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    @gerrit: Sorry, my bad. I see these snarky Socratic questions too often especially here. The top horizontal axis is just the percentage of federal poverty line (FPL). For this particular diagram, it's for a single parent with one child, so the FPL is $15,130 according to p. 2 of the PDF. So 100% FPL = $15,130, 200% FPL = $30,260, etc. – Kenny LJ Nov 27 '17 at 12:44
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    This isn't an answer to the question. The question is "Did it happen in Sweden?", not "Is it plausible, if the Swedish tax system in the 1970s worked like the US tax system did in 1999-2012?" – Oddthinking Nov 27 '17 at 13:41
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    While I take your point, this is not technically about tax rate. Neither TANF nor EITC are taxes or tax refunds. You might indeed lose money by going over a certain income threshold (something that happens all the time to people on social assistance who start to work), but it's not because of the tax rate. – DJClayworth Nov 27 '17 at 14:49
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    @DJClayworth: Economists understand all government "taxes", "benefits", and "transfers" to be the same thing. Taxes are simply negative benefits and benefits are simply negative taxes. These are simply meaningless labels. What matters is what the government gives or takes away from you depending on your income. Of course, most laypersons fail to understand this, which is why politicians are careful when naming new taxes or benefits. (But if you do insist that such labels are meaningful, note that the EITC stands for the Earned Income TAX Credit.) – Kenny LJ Nov 28 '17 at 0:10
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    @DJClayworth: I never said that the EITC (or indeed any single tax or benefit program) alone had a MTR exceeding 100%. My point was that when we take into account all the different programs, the MTR has occasionally exceeded 100%, for certain individuals/households, at certain points in history. – Kenny LJ Nov 28 '17 at 5:34

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