Thursday, December 06, 2007

Something is rotten in the state of Denmark

It's the massive marginal tax rate. Young, skilled Danes are getting out of town, leaving the government to wonder who's going to pay for all the social programs. From the International Herald Tribune: "High income taxes in Denmark worsen a labor shortage"

The Organization for Economic Cooperation and Development, which is based in Paris, projects that Denmark's growth rate will fall to an annual rate of slightly more than 1 percent for the five years beginning in 2009, reflecting a dwindling supply of a vital input for any economy: labor.

The problem, employers and economists believe, has a lot to do with the 63 percent marginal tax rate paid by top earners in Denmark - a level that hits anyone making more than 360,000 Danish kroner, or about $70,000. That same tax rate underpins such effective income redistribution that Denmark is the most nearly equal society in the world, in that wealth is more evenly spread than anywhere else.
Yeah, income redistribution is great unless you're one of the top earners getting their income redistributed away. So many young Danes have moved to London for the lower tax rate that it's jokingly referred to as a Danish town.

Extra - Mark Steyn on the clash of cultures brewing in Europe. Why did I add this? Because as skilled workers flee high tax rates, the labor force needs to be filled by large-scale immigration. Demographics is destiny.

4 comments:

Anonymous said...

I haven't Danish numbers at hand, but the Denmark-Norway-Sweden taxation systems share many similarities. From 1995-2005 in Sweden, the average tax rate was slightly over 50%, and the average GDP growth rate per capita was 2.5%. During the identical period, the United States was 26.4%, and the average GDP growth was 2.1%.

In other words, Sweden had somewhat better growth, with much higher taxes. (Or "despite," if that's how you prefer it.) Do you think that if they'd gotten the tax rate down to 26%, that their growth would have doubled? Or maybe they should have cut taxes for the upper class, combined with huge deficit spending. Would that policy have created the kind of economic miracle currently being enjoyed by Americans?

Closer to home, Canada's tax rate is slightly under 50% overall, slightly over 50% in Quebec. Their dollar just surpassed the U.S. dollar in value.

The top U.S. tax rate has been high in boom periods, and low during recessions. The historical correlation between taxes and growth simply does not support the slash-and-drown argument (nor the tax-em-all side's).

The official U.S. federal tax rate also doesn't reflect items such as state income tax, FICA, Medicare, property tax, assessments, and so forth. So the United States already boasts much higher taxes than the GOP claims on paper... not far off from the Scandinavian levels for many taxpayers... only without the universal health care, and with a large proportion of the taxes being squandered to pay off a gigantic, and optional, national debt.

Beyond the basic philosophical debate about what a government should or should not provide, your complaint should be less math-based, and more service-based. As a taxpayer, what is it that you're getting for your money? And is it really more cost-effective than supposed "demographic time bombs" like Denmark?

Anonymous said...

Do these "tax fleeing Danes" realize that British taxes are about the same: 40% on the equivalent of that 360,000-kroner income, plus 11% national insurance, plus 17.5% for all VAT purchases, plus 3 or 4 thousand more in council rates?

Is the 2007 Danish marginal tax rate appreciably different from 2000, or 1995, or 1990, or 1980? When did this alleged tipping point take place?

Beyond anecdotal quips about a "Danish town" on the Thames, where's the case that this thunderous brain drain is occurring? Smells a bit like all those imaginary tycoons who suddenly put on their hobo clothes and stop producing whenever the capital gains tax is increased.

JorgXMcKie said...

I can sure agree with "the taxes being squandered to pay off a gigantic, and optional, national debt."

We spent several trillion dollars losing LBJ's "War on Poverty" (without moving the official poverty stats much at all) before declaring defeat and changing the welfare system in the 90s. Without that non-productive crap we'd have waaaaaay less national debt to pay off.

Also, the hundreds of billions (perhaps trillions) formerly and currently spent on porkbarrel boondoggles and idiot over-regulastion could have not been spent and we might, between the two, not have any national debt.

As a matter of fact, I have a temporary solution. We stop all new federal spending, adjust last year's budget for inflation (don't renew *any* pork), quit passing laws, and quit passing regulations for 10 years and concentrate on making what we have now work.

In ten years we'll have a largish budget surplus, a decade of not having to worry about complying with new and ever more complicated and idiotic laws or regulations and be paying off the debt.

I would settle, though, for a constitutional amendment limiting the number of words allowable in a law and requiring that for each new law passed an old one had to be repealed.

Anonymous said...

It's both funny and sad to see a true believer blaming a war for causing the 2007-08 national debt... but the war HE'S thinking of started over 40 years ago.

Brilliant plan for getting back to a surplus, too. Because we all know that no "big government" president has successfully built up a largish budget surplus since... gee, can anybody remember who?