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IKEA, Sweden, and the inheritance tax: lessons for the US

IKEA left Sweden in protest over the inheritance tax. By making a repeal permanent, the US can avoid such loss of business.

By Anders Ydstedt and Dick Patten / March 18, 2010

Malmo, Sweden; and Washington

America sits at the same economic crossroads today that Sweden faced five years ago. Sweden’s experience in eliminating the death tax could help the United States save businesses and add jobs at a critical time.

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Once known as Europe’s socialist paradise, Sweden still has one of the world’s highest top income tax rates (57 percent). But likethe US, it no longer has an inheritance tax, or what Americans commonly refer to as the estate or “death” tax.

The Swedish Parliament abolished its inheritance tax in late 2004. At the time, Parliament was controlled by a coalition of the socialist, green, and communist parties, not the current center-right Alliance for Sweden.

But Sweden was in the midst of a difficult recession. Unemployment was shooting through the roof. The country’s entrepreneurs were moving offshore – and taking their companies with them.

The death tax was only making a bad situation worse. Two of Sweden’s largest companies, IKEA and Tetra Pak, a food packaging company, had already moved overseas in protest of the estate tax. Other major companies threatened to follow, draining Sweden of entrepreneurial talent, capital, and jobs.
Swedish politicians, including those who favored the death tax in strong economic times, decided to repeal the law as a means to help grow the economy and restore jobs.

The Family Business Network of Sweden found that between 50 and 60 percent of Sweden’s new jobs were created by family businesses. By 2004, nearly half of these business owners were over 50, according to Statistics Sweden. The inheritance tax was very much on their minds.

Considering reports by the Swedish Tax Office that the death tax and its companion, the wealth tax, had already cost the government a staggering $200-plus billion in lost revenue – more than half the current Swedish gross domestic product – Swedish policymakers realized that the inheritance tax was a recipe for economic disaster.

Accordingly, the Swedish people – including the labor unions – put ideology and party labels behind them and the government repealed the tax.

Since then business advisers report that owners have been able to focus on company growth and job creation, rather than on avoiding the inheritance tax.