Congratulations Mayor Mamdani, New York City taxes the rich like Sweden
Blue states tax the rich like Europe; it is poor Europeans who pay for the welfare state
American socialists love to cite the economic model of the Nordic countries as one to follow, especially when it comes to redistribution of income from the rich to the poor and a generous welfare state.
“We should look to countries like Denmark, like Sweden and Norway, and learn from what they have accomplished for their working people.”
Bernie Sanders
What American socialists don’t tell you is that most Democratic states and cities already tax the wealthy like an average European country and America’s most populated metropolis—New York City—taxes millionaires and billionaires more than often-mentioned Nordic countries. While this post will focus only on the comparison of tax systems, there is also another reinforcing argument to be made that America’s spending and transfers to the poor are even more progressive than those of all European countries.1
The popular debate about taxing the rich usually centers around the top marginal income tax rate and how much it has fallen since the 1950s to today in the United States. While the top income tax rate stood at 94%2 in 1945 after World War II, it is now 37% after the 2017 tax reform. This simplistic comparison makes it look as if the very rich have enjoyed much lower tax rates when in reality their effective tax rate paid was much lower and similar to today3. Then the naïve leftists compare the American top income tax rate of 37% to Sweden’s 52.3%4 and think that America is letting the rich off easy while Europe can pay for a generous welfare state by taxing the rich. But this comparison is also based in incorrect or incomplete data.
It is true that the top federal income tax rate is lower in the United States than in Sweden, but most Americans also pay state and even local income taxes which do not exist in Sweden. In New York City, home to America’s most famous self-avowed socialist mayor, the highest income earners pay a top state income tax of 10.9% and a city income tax of 3.876% both on top of the federal rate. America also imposes taxes on the richest taxpayers in addition to the income tax rate; these include the regular Medicare tax of 2.9% combined between employer and employee, and the additional Medicare tax of 0.9%, for a combined 3.8% Medicare tax. In other words, the real top income tax rate of a taxpayer living in New York City is not 37% but almost 55%5 .
The sharper critics will point to the fact that those at the top of the income distribution pay a mere 20% capital gains tax, and this is how the rich avoid paying “their fair share.” Again, the socialist critics would be mistaken. The Swedes also tax long term capital gains and dividends at a lower rate than labor income, a flat 30%. Again, leftists may point out that Sweden’s capital gains tax is a full ten points more than America but they would also be missing state and local taxes and other federal taxes. The U.S. government also imposes a net investment tax of 3.8% for taxpayers whose income is above $200,000. And in New York City, capital gains are taxed like ordinary income and thus subject to the top rate of 10.9% at the state level and 3.876% at the local level, leading to a combined long term capital gains and dividends tax of 38.58%, much higher than Sweden’s 30%.
This example extends beyond the New York City versus Sweden comparison, which still taxes the wealthy slightly more when all payroll taxes are accounted for. Most Democratic states tax the rich like most major European countries. New York City, California, Hawaii, and New Jersey, all tax the highest income earners at a higher rate than Norway, Germany, or Italy. New York City is only rivaled by France and the other Nordic countries in its taxation of top income earners.
Figure 1 (including uncapped pension or health contributions)6789
The only European country that taxes rich stock-owners at a higher rate than New York City is Denmark, where the top capital gains tax rate is 42%, above the effective 38.58% capital gains tax rate faced by New York City residents. New York City outranks Norway, Finland, France, Sweden and every other major European country other than Denmark when it comes to the highest capital gains tax rates. Both California and New Jersey tax capital gains at a higher rate than every European country but Denmark and Norway, still higher than Sweden. Shockingly perhaps to socialist advocates in America, Iceland has an even lower capital gains tax rate than American states without capital gains taxation such as Florida and Texas, standing at just 22% compared to 23.8% for the U.S. at the federal level alone.
On inheritance taxation of large fortunes, America also imposes a large tax burden on the wealthy relative to Nordic Europe. Americans who die in Hawaii face a steep 38.2% effective estate tax on estates of $100 million, the highest of any U.S. state and only behind France and the United Kingdom. The supposedly socialist Nordic nations of Sweden and Norway do not tax inheritance or estates at all.
But income, capital, and inheritance taxation is not where the differences stop. Wealthy citizen also pay much more in property taxes in the United States than in European countries. New Jersey and the United Kingdom, not New York are the outlier when it comes to property taxation across the developed world with an average 2.6% and 1.9% property tax rate respectively. The average U.S. state imposes a 1% property tax rate similar to France’s 1.1%. Three of the four Nordic European countries impose effective property tax rates below 0.1% while Finland imposes a 0.4% property tax, below half the rate of the average U.S. state.
Because wealthy individuals tend to own exponentially more valuable properties and more of them, property taxes are progressive. Some people may fairly point out that Norway and Switzerland do impose a low wealth tax which functions as a form of both property and capital gains taxation that partially compensates for their lower direct physical property and capital taxation. However, these countries still tax capital gains at a more favorable rate than American states.
Finally, many will point out that perhaps the differences between European countries and American states must then be at the corporate level. Surely, European countries tax corporations more than America, especially after Trump cut the federal corporate tax from 35% to 21% in 2017, right? Wrong.
Contrary to claims by Mayor Zohran Mamdani and fellow socialists, corporations pay the most tax in New York City than in any other major European country, paying a combined tax rate of nearly 35% between federal, state and local corporate tax. This rate is lower than the sum of all three rates would suggest because state and local corporate taxes are deductible at a federal level so they effectively lower the federal rate. New Jersey comes second with an effective corporate tax of 30.1%, nearly identical to Germany, the highest major European corporate tax. The average U.S. state imposes an effective corporate tax rate of 23.4% similar to the European average and higher than all Nordic countries.
Nordic countries such as Denmark and Norway tax corporations at a 22% rate, Sweden at 20.60% and Iceland at just 20%, similar to American states without a corporate tax such as Florida where corporations face a 21% tax rate. States like Texas which do not have an income tax at the personal or corporate level do impose “gross receipts taxes” on the entire revenue of large corporations, effectively imposing a corporate tax by other name. Florida does not impose a personal income tax but it levies a 5.5% corporate tax.
If all European countries impose lower or similar taxes on the rich and corporations than America’s progressive states, then how do they fund larger governments?
The answer to this question we must first measure government spending correctly. While U.S. federal government spending represents a smaller share of the American economy than government spending of any European country, when we include all levels of government (national, regional, and local), government spending differences aren’t as large. For instance, in Oregon, government spending represents a larger share of the economy than in the United Kingdom, while in New York City the government spends more as a share of the economy than Spain. It is only in red states with small governments where government spending is lower relative to European nations but still higher than the free-market bastion of Switzerland.
Figure 718
European countries with larger governments than America’s blue states fund them by taxing low- and middle-income Europeans. European countries fund larger governments, not by taxing the income of rich Europeans but by imposing large consumption taxes on all their citizens.
The main way European countries tax consumption is that they levy a higher Value Added Tax (VAT) than any American state sales tax. While the top sales tax in the four Nordic countries ranges between 24% and 26%, New York City residents pay one of the highest sales tax rates in America at just 8.875% and Californians pay on average a top sales tax rate of 8.85% with local taxes included.
Figure 819
It is true that most basic goods do not pay the top VAT rate in European countries but lower rates, but that is also true in American states, many of which exempt all food and even clothing from sales taxation altogether. If we compare effective sales tax and VAT rates, American states again come out as the least taxed with effective VATs of between 15% and 16% in all Nordic countries consumption and barely 3.55% in New York City and 3% across the entire United States. In other words, the Nordic countries tax everyone’s consumption at five times the rate of the United States while taxing the rich at a lower rate than America’s blue states and cities.
European countries may tax the rich a lower rate than America’s high tax states but they do tax the middle class at a similar or higher tax rate. That is because their top income tax rate begins at a much lower threshold than America’s and because payroll taxes are assessed up until higher levels of income. What Nordic countries understood but American democrats have not is that capital is more mobile than labor, and while Mayor Mamdani may like to demonize the rich such as Mr. Griffith, Europe knows the rich can just pack and move out with all their wealth, while the poor cannot and they must pay the taxes they owe.
While the top marginal income tax rate of 54.78% for a married couple begins at $25 million in New York City, a higher 56% marginal tax begins at just $66,000 in Sweden. In fact, it is so high the income necessary to pay the top income tax rate in New York that I excluded it from Figure 10 so that other thresholds can be visualized more easily.
Figure 1023
So congratulations, Mr. Mamdani, you were right, we are taxing the rich! The richest New Yorkers are taxed like the richest Norwegians, Swedes, Danes, Finns, and Icelanders. The question left to answer is, are middle-income New Yorkers earning under $100,000 per year willing to pay over 50% of their income in taxes and face 25% sales taxes like in Europe? And if they were, could American government agencies provide the services and quality of life politicians promise even if they had the money?
Blanchet, Thomas, Lucas Chancel, and Amory Gethin. 2022. "Why Is Europe More Equal than the United States?" American Economic Journal: Applied Economics 14 (4): 480–518.
Every $100 of taxable employee compensation after the top tax bracket costs an employer $101.45 due to the employer-side Medicare tax. Therefore, out of the $101.45 in compensation costs $3.8 are Medicare taxes ($1.45 employer side, $1.45 employee side, and $0.9 additional Medicare tax), $37 in federal income tax, $10.9 in New York state income taxes, and $3.876 in New York City income tax. The total income tax paid therefore rises to $3.8+$37+$10.9+$3.876=$55.576 out of $101.45 in employer compensation or 54.78% (55.576/101.45)
The federal, state, and local tax rates do not match the official rates because this measures the effective marginal tax on an additional dollar of compensation. While an employee in the top federal bracket faces a 37% marginal rate, the employer must also remit a 1.45% medicare tax on top so it is really 37% of $1.0145 and so it is effectively 36.47% of each dollar of employer compensation. This issue repeats for all other state and local income taxes.
Texas does not impose a regular corporate tax but a top 0.75% “Franchise tax” which taxes total revenue minus the greatest of four potential calculations (either $1 million deduction, 30% of revenue, employee compensation, or cost of goods). The average SP500 corporation had a most recent 11.9% profit margin, even assuming 50% of its revenue goes to compensation or to cost of goods, then the business will be taxed on 50% of revenue and face an effective 6.3% tax on profits.
European government spending as a % of GDP and total U.S. comes from OECD data while per state data is my own calculation based on 2024 state GDP and state and local government budget data for that year.
To calculate the effective VAT, in the case of Europe, I use the OECD’s VAT Revenue Ratio statistic which measures how much less VAT revenue is collected than if the entire country’s consumption was taxed at the standard top VAT rate. For U.S. states, I use the same year’s (2022) “sales tax breadth” from the Tax Foundation which measures the share of consumption subject to sales taxation and multiply that times the standard sales tax.
Income Tax Rates by Country (2026) — TaxAtlas. For states with a lower top marginal income tax threshold than the federal bracket, I use the 37% federal income tax threshold for married couples. New York’s 25 million threshold for the top rate is excluded so that the chart can be better understood.
Excellent. The next post should be about how much more efficient public goods and services are in some European countries, which, as you noted, poor and middle-class Europeans end up paying for, compared to US states with high tax burdens, like NY. It is striking to see how much better the outcomes in education, health care, and public housing are in Nordic countries ... It seems like the capture of public good provision by some interest groups has not worked very well in some US states.
I try to make this point all the time, but it just seems like slopulist economics and looseness with facts are all the rage on the left and right nowadays. Sigh