Comparing U.S. and Swedish Tax Systems

Question: If a family of four earns $100,000 per year, how much of their income remains after paying all the various taxes in the U.S.?

Answer: a little more than half.

Is this reasonable? That’s difficult to ascertain in a vacuum. It would be interesting to understand how this compares to another country. Since I have spent every summer in Sweden for the past three decades (and did my MBA in Finance at the Stockholm School of Economics), Sweden seemed like the country where I could manage a reasonably fair analysis for comparison purposes.

Question 2: How much money is left after taxes under the Swedish tax system (for a family of four earning $100,000 per year)?

Answer 2: also a little more than half.

What follows is the more detailed analysis comparing the two tax systems.

NOTE: This is a back-of-the-envelope calculation. Outcomes vary considerably based on the underlying assumptions, like family size, spending habits, income, and even the split of the income within the family. Further, it is nearly impossible to construct a true apples-to-apples comparison of tax systems between countries for reasons I discuss below. These caveats to the analysis are interesting as well.

Let’s walk through it.

Family Smith (United States – Texas)

Joe and Susie Smith have two kids, live in Texas, and earn $100,000 per year. They pay taxes on their labor, certain assets, consumption, and investments. They also pay pseudo-taxes on their health and insurance policies (life/health/auto/home insurance, etc.), plus the hidden tax of inflation.^{1 2}

Let’s walk through a simple accounting of the taxes the Smith family pays, starting with their gross household income.

Labor Taxes

• Federal income tax: –$4,000 (after deductions and credits)³
• Employee payroll taxes: –$7,650

Money Remaining: $88,350

• NOTE: I considered, but did not count, the employer payroll tax burden: –$7,650. Employer payroll taxes do not appear on a pay stub, but they do suppress wages and are ultimately, economically borne by labor.

Asset & Consumption Taxes

• Property taxes (home): –$7,000
• Sales & excise taxes: –$2,000
• Vehicle taxes & registration: –$2,000
• Fuel & utility taxes: –$1,000

Remaining: $76,350

Investment Taxes

• Capital gains & dividends: –$2,000

Note: While not every household realizes investment income every year, this reflects a long-term average for families who save and invest.

Remaining: $74,350

Pseudo-Taxes

• Health insurance (employee + wage suppression): –$12,000
• Auto & homeowners’ insurance: –$4,000
• Life & disability insurance: –$1,000

Note: Life & disability insurance are optional, but health and auto insurance are not.

Remaining: $57,350

Inflation (Implicit Tax)

• Purchasing power erosion: –$2,500

Remaining: $54,850

Micro Taxes

• Cellular taxes (Federal Universal Service Fund, state fees, etc.): –$300
• Internet taxes: –$150
• Utility: –$300
• Banking: –$100
• Credit card (interchange): –$50
• Air travel (Federal excise, segment taxes): –$50
• Consumption-specific taxes (alcohol excise, sweetened beverage fees, etc.): –$200
• Housing Transaction Taxes (title insurance, transfer fees): –$200
• Healthcare (ACA insurer fees embedded in premiums): –$300
• Legal & Administrative (passport, document filing, notary, court filing): –$100

Note: Individually, these are small. Collectively, they are not.

Final Remaining: $53,100

Final Net Economic Value

≈ $53,000 of real purchasing power

Of course, there are huge variations in the amount of taxes paid by families, depending on income, wealth, spending, and frankly, tax planning.

Evaluation

So far, I have not made a value statement about the amount of taxes paid. I have only provided an accounting. If you feel that ~50% total tax collection for the Smiths is excessive, you are likely to perceive the value of the services and benefits provided by the Federal, state and local governments to be lower than the amount paid. If you feel ~50% tax collection is justified, then you generally believe the opposite.

So, the judgement isn’t in the accounting. The value judgement begins when we ask a different question: Do we (the “average we”) collectively believe that we receive reasonable value in services and benefits for the taxes we pay?

Where do you stand?

Compared to Sweden

Comparing taxes and benefits between countries gets tricky. Why? Because the dollars alone don’t account for the variability in the quality of benefits and services received from the government. Nevertheless, let’s at least take a stab at it.

Family Andersson (Sweden)

Sven and Malin Andersson have two kids, live in Uppsala, Sweden, and earn $100,000 per year (roughly 950,000 SEK at the current exchange rate). Like the Smiths, the Anderssons also pay taxes.

Labor Taxes

• Municipal Income Tax rate = 32%
• National Income Tax rate: 20% flat tax for income above ~$68,000

Here we already encounter a dilemma in the comparison to U.S. taxes.

While Americans often file taxes jointly as a household, Swedes file individually. Because of this, the tax rates are different if we assume each spouse makes $50,000/year instead of $100,000 for one spouse and $0 for the other.

If we assume both spouses make $50,000 each, they are both below the National Income Tax threshold and owe $0 National Income Tax. In this case, the combined tax rate is 32%.

If we assume one spouse makes all $100,000, then there’s a flat 20% applied to the last $32,000. This produces an equivalent total tax rate of 38.4%.

Let’s use the average of these two numbers as a simple estimate = 35.2%.

However, once we also account for the Swedish standard deduction and the earned income tax credit, this adjusts to 27.7%.

Remaining: $72,300

• Employer payroll tax burden: 31.4%
• Note 1: to compare fairly to the U.S. scenario above, I did not count this. But again, this does ultimately suppress wages and plays a silent role in this analysis (discussed further in “CAVEAT #4” below).

Note 2: this may seem excessively high compared to 15.3% in the U.S. (7.65% employee + 7.65% employer). But the Swedish system includes additional benefits that are not present in the U.S. (notably: healthcare, childcare, disability, parental leave, etc.).⁴

Remaining: $72,300

• Add-back child allowance: +$3,000⁵

Remaining: $75,300

Asset & Consumption Taxes

• Consumption (VAT): –$8,000
  • 25% flat rate, but I have assumed that not all income is spent in consumption
• Property Taxes: –$1,000
• Vehicle Taxes: –$1,500
• Fuel & Utility Taxes: –$2,500

Remaining: $62,300

Investment Taxes

• Capital gains & dividends (averaged): –$1,500

Note: Sweden has a flat 30% tax on capital gains. However, Swedes with income in this range generally have lower investment assets compared to Americans due to the pension system provided by the state.

Remaining: $60,800

Pseudo-Taxes

• Health insurance: $0
• Employer health premiums: $0
• Auto insurance: –$1,500
• Home insurance: –$800
• Life & disability insurance: –$500 (optional)

Remaining: $58,000

Inflation (Implicit Tax)

• Purchasing power erosion: –$2,500

Remaining: $55,500

Micro Taxes

• Telecom & broadband fees: –$300
• Banking & payment fees: –$150
• Alcohol excise taxes (if applicable): –$400
• Travel taxes & fees: –$300
• Administrative fees: –$150

Final Remaining: $54,200

Caveats in the Comparison

It might be tempting to draw a conclusion about which system we might think is “better” or preferred based on the rough estimates above. However, there are a lot of caveats and nuances that make this comparison quite challenging.

Let’s add some further context to differentiate benefits between the two countries.

CAVEATS #1

The Andersson family does not (directly) pay for the following items that the Smiths likely do:⁶

• Health insurance (however, recall that I accounted for the health insurance premiums for the Smiths as a tax, so this is almost an apples-to-apples comparison, ignoring that the Smiths might exceed maximum healthcare coverage limits whereas the Anderssons will not).
• Most medical expenses (the Smiths often have an annual deductible whereas the Anderssons do not. Co-pays and deductibles are negligible in Sweden).⁷
• Student loan interest
• Early childcare expenses (Sweden provides subsidized care for younger children)
• Disability insurance
• Many elder care costs
• Significant retirement saving (Sweden’s public pension acts as a savings vehicle)
• University tuition (with university expenses in the U.S., this one alone can be a significant difference)

University tuition is such a large differentiator, it’s worth a further conversation.

In the U.S., grades K-12^th are compulsory, funded by taxes. Same in Sweden. In the U.S., university is optional. Same in Sweden. The main difference then is that the U.S. funds 13 years for schooling from taxes collected while Sweden funds up to 17 years. The last four years happen to be the most expensive… by far.

CAVEATS #2

In addition, Swedes also receive:

• 24 months of maternity leave at ~78% of salary (capped). This leave is often split 18 months maternity + 6 months paternity.
• Child allowance (discussed above)
• Free transportation for the elderly (free rides to the grocery store, for example)
• A minimum of 5 weeks of paid vacation per year, regardless of tenure
• Significant employee (and consumer) protections

This set of caveats are where the comparison between countries begins to break down significantly… well, at least beyond my desire to quantify the approximate value for each for the “average Swede”. Although not equally distributed, these benefits do have significant, real value.

CAVEAT #3

We should also highlight another key differentiator… Americans work approximately 25% more hours per year compared to Swedes.

Labor statistics show that Americans work about 1,800 hours per year compared to 1,420 for Swedes.⁸ This is a real factor, but quite difficult to estimate as an economic benefit. Consequently, my analysis does not account for this.

SOME COMMENTARY

Up to now, you might have formed an opinion on which system you would choose.

At first glance, it would seem like the Swedish tax system edges out the U.S. system, given the extreme benefits with nearly identical taxes owed between the two countries. At least that would be my view if I just sort of think about it rationally (for the very specific case of the Smiths vs. the Anderssons). Consider this thought experiment:

If the (average) Smiths and the (average) Anderssons (with $100,000 annual income) were given the opportunity to choose which tax/benefit system they would want, I would guess that the average Smiths would flip to the average Anderssons tax/benefit plan and the average Anderssons would likely stay with their current plan.

Of course, not every family would feel the same way. But if the hypothetical Smith and Andersson families represent the “average” family of four making $100,000 per year in each country respectively, then I would guess the scale would tip toward more “average” families opting for the Swedish system.

But here’s the rub. The Smiths are not “average”, nor are the Anderssons. As individual family incomes increase, we would start to see the decision reverse, with more families electing the U.S. tax system because the tax difference widens significantly between the two systems as incomes go up, especially when the Swedish National Income Tax kicks in more and more at the additional 20% level.⁹

But there’s more to it than that…

CAVEAT #4

This is where the comparison breaks down completely.

The Smiths and the Anderssons are not comparable because the “average” family making $100,000 per year in the U.S. is not the same average family in Sweden. Why not? Because it is considerably more difficult to make $100,000 per year in Sweden compared to the U.S. (Note: I am not saying that $100,000 per year is an average salary… just a round number to use for this analysis and discussion).

The median household income in the U.S. is $105,000 – $115,000.¹⁰

In Sweden, it’s $77,000.¹¹

The difference is significant.

While I am unsure of all the factors that play into this difference, certainly, a contributing factor is the 31.4% employer payroll tax burden, which would act to suppress wages. While I did not specifically include this in the comparison calculation above, because the tax is paid by the employer, it is a real economic loss in the system. In fact, the difference in payroll tax rates between the countries explains a large part of the median income disparity between the Smiths and the Anderssons.

The problem: this whole analysis was based on the Smiths and the Anderssons making the same wage. But this isn’t a fair comparison because it doesn’t match the wage data for average household incomes in the respective countries.

My Take

Let’s make the oversimplifying assumption that each country’s tax system, (United States and Sweden) reflects the collective societal values for each country.¹²

If you live and work in Sweden, do you feel that you get sufficient benefit and services for the taxes you pay or would you opt to convert to the U.S. tax/benefit system if you could?

Likewise, if you live and work in the U.S., do you feel that you get sufficient benefit and services for the taxes you pay or would you opt to convert to the Swedish tax/benefit system if you could?

The answer, I suspect, is… it depends.

Are we healthy? Are the kids going to university? Do I want less hours at work and more vacation for a lower take-home wage? And perhaps the largest factor… how much money do we make?

I think most Americans would say that they would rather have more money left after taxes and decide how to allocate it themselves, an individualistic mindset, typical of the American culture. This is particularly true if the household income is high. A parallel sentiment that factors in here – a lot of U.S. citizens (likely most) do not hold a favorable opinion of how their government spends tax dollars. The general opinion is that the U.S. government is not an efficient asset allocator nor an operationally efficient organization.

Likewise, I think most Swedes would opt for their system, following a collective, group-first cultural mindset. Most Swedes also seem to have a much higher view of the efficacy of their government’s spending, compared to Americans.¹³

What do you think? Comment below.¹⁴

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FOOTNOTES:

1. While Americans do not typically think of health coverage and insurance as a “tax” strictly speaking, this was necessary to include to have a fair comparison with the Swedish tax system. I think it could be successfully argued that certain health and insurance requirements are effectively a tax, in that the government requires citizens to purchase these, even though the payments do not go to the government itself. Nevertheless, they are mandated by law.
2. What I did not include in this analysis, but probably should have, is an estimate of the hidden future tax associated with deficit spending… but that was outside of the scope of I wanted to present here.
3. If you are thinking that $4,000 Federal income tax seems really low, it is. Given my assumption about a U.S. married couple with two kids, making $100,000/year, the standard deduction of $29,000 erases much of the Federal income tax burden (this effectively reduces the taxable income to $71,000 and the family never reaches the higher tax brackets). In addition, the Child Tax Credit further reduces taxes owed by $2,000 per child.
4. Here a breakdown of the Swedish payroll benefits:
   • General payroll tax: 11.62%
   • Retirement pension contribution: 10.21%
   • Health insurance contributions: 3.55%
   • Parental insurance contributions: 2.60%
   • Labor market contributions: 2.64%
   • Survivor’s pension contributions: 0.60%
   • Work injury contributions: 0.20%
5. Sweden provides families with a tax-free child allowance which scales with the number of kids. For two children, it pays ~$250/month from birth to 18 years old. Because this is a direct deposit into the bank account, for the Anderssons, we will add $3,000/year back in our tax calculation.
6. Technically, the Anderssons are paying for these things, just through their taxes.
7. Years ago, my mom was visiting us in Sweden and needed to go to the emergency room. Upon leaving, she stopped at the reception desk to pay, but the staff did not know how to charge someone for healthcare. They knew they were supposed charge, since mom was not a Swedish citizen, but they ultimately decided it would cost the staff more to figure out how to charge my mom than the amount to be charged. They effectively said, “We’ll get it next time.”
8. Source: OECD “Hours worked” by country.
9. As a secondary data point, if a Swedish individual makes the equivalent of $250,000/yr, then the effective tax rate is ~45%, compared to the 27.7% noted above for family Andersson.
10. Source: Federal Reserve Bank of St. Louis. Jan. 1, 2024 = $105,800 [NOTE: a family-of-four is more likely to have two income earners compared to the median household income for all households. The best estimate for a family of four is $125,700 per year in 2023.]
11. Sources on household incomes in Sweden is scarce. There is a generally accepted estimate from 2021 of $58,000. The issue is, Sweden tracks income data on median individual incomes ($48,000/yr in 2024) without reference to the average number of income earners per household. Best guess is 1.6 income earners per household as Sweden has high labor participation rates. This equates to ~$77,000 per year median household income.
12. I am not arguing that one is better than the other, nor am I commenting on the efficacy of either, just that they are different.
13. I should note that many Swedes struggle to comprehend how Americans can sleep well with what they would consider extreme risks (health emergencies above insurance coverage limits, high deductibles, risk of lawsuit, risk of sudden unemployment with little safety net by comparison, and significantly higher crime rates).
14. A last footnote to debunk a common misperception on healthcare in Sweden. Our experience and general observation have been that healthcare in Sweden is excellent. The facilities are excellent. The care is excellent. Consequently, I did not consider quality of healthcare as a factor in my commentary.