If Washington sincerely wants to reduce the budget deficit and national debt while protecting the broader economy, it should learn from other nations which have succeeded. One country stands out: Norway.
Norway has the largest budget surpluses in the developed world, no net national debt, citizens enjoy a robust safety net, and unemployment is below 3%. (1) (2)
What is Norway’s secret, other than refusing to join the European Union?
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Before the discovery of off-shore oil in the late 60s, Norway’s lackluster economy earned the nickname ‘Europe’s ugly duckling’. But Norway’s subsequent success has as much to do with public policy as their fortuitous location near petroleum reserves.
Norway’s overall tax as a share of GDP is among the highest in the OECD–for corporations, it is the highest. Norway’s corporate tax revenue as a share of GDP is above eight percent—the highest in the world and four times higher than the US. (3) By comparison, the US is the third lowest taxed country and the second lowest for corporations. (4) In other words, if a US company sought lower tax rates by relocating to another country, as they regularly threaten, there is only one country in the world they could go: Iceland. (5) Contrary to the myth of job creators, high rates have not crippled Norwegian entrepreneurs. In fact, Norway produces more successful business start-ups than the US. (6)
By far the largest source of Norway’s tax revenues is from off-shore oil and gas development. In addition to the 28 percent corporate rate, the government collects 50 percent surtax on oil and gas profits for a combined tax of 78 percent. (7) The majority of oil revenue is saved in a sovereign wealth account estimated at $640 billion—the largest in the world. (8) Norway limits the amount of oil revenue that can be spent on the annual budget to no more than 4 percent of the fund’s returns, although the government broke the rule during the global recession to prevent a collapse in spending.
The US also possesses one of the largest oil and gas deposits in the world, but profits from its development accrue in the accounts of Exxon and BP rather than the public ledger.
Numerous polls show Americans want their representatives to focus on jobs and the economy. Americans strongly oppose cuts to Social Security, Medicare, and Medicaid. Two of the most popular proposals for reducing the debt, aside from deep cuts in military spending, are raising taxes on corporations, as well as a windfall profits tax on oil companies. Fortunately, the solutions which are the most politically popular are also the most economically effective and morally defensible.
Norway’s economic miracle proves that responsible fiscal management starts with protecting the safety net and asking the people who have benefited the most to pay their fair share—the opposite of what the apostles of austerity tell us.