Finland’s link between taxes and prosperity

Imagine living in a relatively small nation, where per capita income is $11,000 less than in Washington state, and the only natural resources are timber, water and ice. People pay a 31 percent tax on personal income in excess of $82,000, a value-added tax of 14 percent on food and restaurants, and 24 percent on most other goods. How could anyone possibly do well there, much less run a business and prosper?

And yet, looking at living conditions — such as education, health care, quality of life, economic dynamism and political environment — this nation actually does much better than we’re doing in the U.S. Fewer people are poor, and more people there live longer, are more productive, and are … well, happier.

This place isn’t Arendelle of the movie “Frozen.” It’s Finland. Finland has a highly industrialized, largely free-market economy. The conservative Heritage Foundation rates Finland and the U.S. 74th and 76th, respectively, in terms of “economic freedom.”

In Washington state, our per capita income is close to $50,000 per resident. By that measure, we’re a rich state. But we’re underfunding our schools from pre-K through higher education; too many people are homeless, while many more face stagnating incomes and diminishing public services; and we’re all facing more uncertain economic futures.

So how do the Finnish people prosper with so much less, ostensibly, than we have? The answer is, they make shared investments to build their kids, families and communities.

Look at the economy in terms of peoples’ lives: When a baby is born in Finland, the family gets a baby box with clothes, diapers, bedding, towels, a picture book, a teething toy and other items. Paid family leave kicks in for at least a year, at 80 percent compensation with a guarantee you can return to your job. When mom or dad decides to go back to work, the cost of day care is subsidized so the maximum monthly payment is $322.

As kids grow up, their parents can devote real time to them. Every worker gets five weeks vacation, and the family budget is enhanced with a monthly stipend of $110 for the first child. The stipend increases with each child, so the stipend for the fifth child is almost $200. Pre-kindergarten is universal and free for all children. Schools provide meals for all children. In school, children are immersed in a system focused on creativity, teacher and student autonomy, foreign languages, math and music. No surprise: 15-year-old Finns are the top in the world in education. And when a student goes to technical college or the university, there is no tuition. Instead, the student gets a living allowance!

The Finnish health care system covers everyone. A friend of mine recently had surgery which required two nights in the hospital. His total bill: $103.74, inclusive of surgery, hospitalization, care and medicines!

In retirement, people receive about 55 percent of their average earnings along with a $560 monthly housing allowance. The average pension, including the housing allowance, comes to about $29,000 a year. Full pensions start at age 63. It’s guaranteed, like our Social Security, so the Finns don’t have to worry and hope that their 401(k) performs well. They don’t need 401(k)s! How is this financed? The Finns pay 5.7 percent of their wages into the pension system, and 7.2 percent after age 53. Compare that to our 6.2 percent tax for our Social Security. Employers pay more: 23 percent.

So sure, taxes are higher in Finland. But it’s a shared investment the Finns use to build their economy. The Finns have figured out that once you provide a universal platform of educational opportunity and health and social security, then businesses can just focus on doing business, being innovative, creating new products and systems.

That is what the Finns do. It has a dynamic private sector, ranked third in the world by Grant Thornton accounting (the U.S. is ranked 12th). There are double the number of small and medium enterprises per 1,000 people in Finland compared to the U.S.

And the Finnish people don’t have to scrimp to pay $1,500 a month for child care, worry about how to take time off from work when they have a child, wonder how to pay $12,000 yearly tuition for a public university tuition, or risk bankruptcy in a medical emergency, or wonder about having enough to eat when they retire.

That means that they can grasp their future with hope. Can we?

John Burbank is the executive director of the Economic Opportunity Institute, www.eoionline.org. Email him at john@eoionline.org.

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