Why is it that some ideas capture the popular imagination and others die on the vine? A lot has to do with timing, getting noticed by opinion leaders, having a pithy turn of phrase. Yet I’ve seen articles and books that (at least to me) make fundamentally important observations and go nowhere, and others which seemed by comparison lightweight, get a great deal of attention.
Now the object lesson isn’t in the earthshaking category, yet it’s sufficiently interesting and instructive to warrant more attention than it appears to have gotten.
Robert Kuttner wrote an article for Foreign Affairs (subscription required) on the Danish economic model. The summary:
Denmark has forged a social and economic model that couples the best of the free market with the best of the welfare state, transcending tradeoffs between dynamism and security, efficiency and equality. Other countries may not be able to simply copy the Danish model of social democracy, but it nonetheless offers important lessons for governments confronting the dilemmas of globalization.
Given that we have Larry Summers, Martin Wolf, and plenty of others regularly hand-wringing about the growing backlash against free trade, a country, particularly a little country that of necessity has to trade, has managed to reach not merely workable, but successful and robust mix of safety nets and market mechanisms is noteworthy, precisely because it flies in the face of the popular prejudice that you have to have one or the other. Conventional wisdom holds that you have either lots of social welfare and sclerotic, rigid economies, or you have laissez faire capitalism which (allegedly) produces higher growth rates, although it increasingly appears that the main beneficiaries are those at the top, and the average guy gets left behind, sometimes in a dustheap.
But look at what we get in Denmark. According to Kuttner, trade unions call on industry to do more outsourcing! Mirable dictu! That alone should stir interest.
Yes, the piece was deemed interesting enough to have run in Foreign Affairs, so presumably some serious policy wonks took note. But if the level of comment in blogland is any indicator, it appears to have been largely ignored by the Serious Economist cohort. Dani Rodrick gave it a very nice writeup last week, but a quick search shows that it went nowhere.
And this is an article that appeared in the March/April issue, mind you.
[Update: Mark Thoma provided this and this link, along with two others, to some older discussions of fliexicurity].
So what’s afoot? I can make a few quick guesses:
1. Kuttner works as a journalist. Those outside the academy are not held in high esteem.
2. That name “flexicurity” stinks.
3. Recall the Swedish miracle? I wonder if the fact that Sweden eventually fizzled makes the experts loath to get on any Scandinavian bandwagons.
4. As discussed below, even if you accept that the Danish model can’t be readily exported, it nevertheless has some uncomfortable implications for the US.
Let’s get to the basics according to Kuttner:
…..the Danes are passionate free traders. They score well in the ratings constructed by pro-market organizations. The World Economic Forum’s Global Competitiveness Index ranks Denmark third, just behind the United States and Switzerland. Denmark’s financial markets are clean and transparent, its barriers to imports minimal, its labor markets the most flexible in Europe, its multinational corporations dynamic and largely unmolested by industrial policies, and its unemployment rate of 2.8 percent the second lowest in the OECD (the Organization for Economic Cooperation and Development).
On the other hand, Denmark spends about 50 percent of its GDP on public outlays and has the world’s second-highest tax rate, after Sweden; strong trade unions; and one of the world’s most equal income distributions. For the half of GDP that they pay in taxes, the Danes get not just universal health insurance but also generous child-care and family-leave arrangements, unemployment compensation that typically covers around 95 percent of lost wages, free higher education, secure pensions in old age, and the world’s most creative system of worker retraining.
Aside: would you mind paying that much in taxes if you got all those bennies, plus clean streets and nice public transportation? (Note I am unaware of what individuals pay in taxes versus corporations, but one has to assume the effective rate is pretty high). And remember, since the income distribution is so even, it’s not like some people are paying disproportionately for public services.
Kuttner gives us his caveats:
Yet Denmark’s social compact is the result of a century of political conflict and accommodation that produced a consensual style of problem solving that is uniquely Danish. It cannot be understood merely as a technical policy fix to be swallowed whole in a different cultural or political context. Those who would learn from Denmark must first appreciate that social models have to grow in their own political soil.
Danish “flexicurity” means no labor rigidity. Like the US, you have employment at will; the only restriction on firing workers is that you give them advance notice. The key elements:
[F]ull employment; strong unions recognized as social partners; fairly equal wages among different sectors, so that a shift from manufacturing to service-sector work does not typically entail a pay cut; a comprehensive income floor; and a set of labor-market programs that spend an astonishing 4.5 percent of Danish GDP on initiatives such as transitional unemployment assistance, wage subsidies, and highly customized retraining.
As Rodrik notes:
In the U.S. by contrast, “spending on all forms of government labor-market subsidies — of which meager and strictly time-limited unemployment compensation makes up the most part — is about 0.3 percent of GDP.
What Kuttner stresses, and this is hard for Americans to swallow, are two elements:
1. The large degree of government intervention, even if it is to promote better functioning labor markets and more economic efficiency
2. The commitment to economic equality
And there are not obvious reinforcements between 1. and 2.
As for 1, the US has (unfortunately) come to associate large scale government programs with wealth transfer (as in the New Deal and Great Society programs) or (occasionally) showcases that are assumed to produce useful side benefits (NASA, the national labs such as Sandia, the national park system). Somehow most people don’t include our massive defense apparatus on this list.
Yet we tend to forget our own government support of business (the official kind, not the pork or regulatory capture variety), such as the federal funding, particularly by the National Institutes of Health, of drug research (estimates range from 40% to 55% of total outlays). Japan in its heyday benefited from the guidance of the Ministry of Trade and Industry. Australia has its Commonwealth Scientific and Industrial Research Organization, a highly government funded applied science think tank focused on industries deemed economically important.
But the Anglo-Saxon countries don’t have much in the way of models for buffering labor market dislocation. We tend to see it as welfare, but that line of thinking is fatally flawed.
Consider: as societies become more advanced, economic roles become more specialized. Everyone is a hunter-gatherer in a primitive society. In a pre-industrial society, you will see specialization (farmers versus tailors versus smiths), but these economies features little or no growth, and everyone’s fate tended to rise and fall together, depending on the vagaries of weather, wars, and pestilence. There wasn’t a scenario under which the smith would make a killing and the rest of the village would go begging.
Industrialization brought growth but also greatly increased uncertainty. As Adam Smith pointed out, even greater labor specialization becomes the norm. And that has increased over time not just in factories but in all walks of life. 100 years ago, a doctor was a doctor was a doctor. No more. You see it even in economics: trade economists versus macroeconomists versus financial markets specialists. Yes, they are often familiar with the work in other areas (teaching will force that on them), but they tend to publish more narrowly.
But if society demands increasingly specialized skills, and these skills in turn require the investment of time (education, considerable on the job training, or both) that creates labor market inefficiencies due to skill imbalances as demand and technologies change. This is a drag I don’t see well recognized in conventional theories. It seems to be assumed that when trade or technological advances lead to certain industries, like buggy whips, to die off, labor and capital will automatically adjust. It isn’t so simple and no where near so frictionless.
We thus have the highly visible problem of individuals suffering job losses, which can lead to long term un and under-employment, and/or not finding work only at considerably lower pay. That tends to be treated as a Darwinian outcome in the US, and we miss the fact that many of the people really could be redeployed in other fields if they had real training, not the half-hearted variety on offer here. Too often, the proposals to retrain workers to soften the blow of globalization sound more like a ruse to placate voters than serious policy.
Now of course, that view, as far as America is concerned, has some big shortcomings. First is the uneven and often substandard public education. It’s hard to retrain people if they lack an adequate foundation. Second is labor mobility. As far as I can tell, you can drive from one end of Denmark to another in just over five hours. Thus if one had to move to find work, it would not be as wrenching as in the US (although changing communities is never easy).
But Denmark’s biggest secret weapon is its even income distribution. That makes no only makes labor highly fungible, but is also facilitates people taking the jobs that suit them best (to the extent they have choices) rather than basing their decisions primarily or significantly on the size of their paychecks.
One thing that has quietly distressed me is how much US talent has been sucked up by Wall Street. I doubt that having a good bit of our top mathematical talent work on making better derivative models is the best use of their skills as far as society as a whole is concerned (and they don’t even appear to have been hugely successful at that). A high proportion of the best and the brightest of Ivy League schools have also gone into finance; in earlier generations, they would have gone into a much broader range of occupations. Would Dean Richardson, the top veterinary surgeon who attempted to save the racehorse Barbaro, ever have gone that route had he graduated from Dartmouth in the 1980s? (Richardson was class of ’74). Highly doubtful. Multiply Richardson by 10,000, maybe even 100,000. And that’s just counting the elite schools. The same pattern holds at middlling to good but less celebrated schools (and of course, the other sad fact is America is due to the vagaries of primary and secondary education, plenty of smart, hardworking people don’t have a shot at the best schools. Even in my very limited personal sample, I’ve seen way too many examples).
Consider further: in societies with more even income distribution, you can have higher caliber public servants (is the problem with government the institutions per se, or the difficulty in getting good people in the rank and file?) and teachers. And within organizations, people may be less resistant to change if the worst possible outcome, job loss, really isn’t so terrible.
Yet economic competitiveness seems to have become inextricably enmeshed with our notions of the American Dream. It once meant that poor immigrants could come here, better themselves, and have a shot at middle class life. And even if they did not attain it, if their children applied themselves, almost certainly would.
But the American Dream seems to have morphed into something different. It no longer seems to stand for “if you work hard and play by the rules, you can have a comfortable and productive life.” It feels as if it has become bound up with ever-increasing consumption, no matter what your economic cohort. Yet that new version of the dream now appears to be accessible only to those in the top echelons. So the fact of stagnant incomes for the bulk of the population has been exacerbated by the gap between the lifestyle aspirations pushed in media and the life most people lead.
And per the Danish example, the hidden costs of income inequality may be far higher than anyone wants to admit. To me, that it the inconvenient truth of Kuttner’s piece which is leading it to be less popular than it deserves to be.
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Denmark has surpassed the tax rate in Sweden.
Unfortunately the original article was missing but it still exists in google cache.
http://64.233.183.104/search?q=cache:YA-0_0FeZSkJ:www.denmark.dk/en/servicemenu/News/BusinessNews/DenmarkWinsHighestTaxCompetition.htm
http://economistsview.typepad.com/economistsview/2006/03/flexicurity.html
http://economistsview.typepad.com/economistsview/2007/02/maximizing_flex.html
http://economistsview.typepad.com/economistsview/2007/11/big-governments.html
http://economistsview.typepad.com/economistsview/2007/01/helping_displac.html
I am unaware of what individuals pay in taxes versus corporations, but one has to assume the effective rate is pretty high
Corporate tax rate is 25%. Individuals pay 8% income tax of income up to approx US$6,000. Approx. 42% of income between US$6,000 and US$65,000 and approx. 60% of all income above US$65,000. If you for example make US$60,000 you will pay 0.08*6000+0.42*(60000-6000)= 25,260 which gives an effective tax rate of 38.6%
There is also VAT of 25%.
It can’t be overemphasized that Denmark is comparatively ethnically homogenous. Those immigrants to the US ‘who worked hard and got ahead?’ They did so only very slowly under prevailing conditions of substantial discrimination. Catholics in the 19th century faced a very low glass ceiling at best, for example. The resistance in the US to ‘undeserving social undesirables’ benefiting from direct public assistance is entrenched; not the same thing as bigotry per se though there’s still a bedrock of that here. We _do not_ see that we’re all in this thing together, regrettibly.
“[F]ull employment; strong unions recognized as social partners; fairly equal wages among different sectors . . . ; a comprehensive income floor; . . . transitional unemployment assistance . . . .” Gee, I remember when we _had_ most of those things; not in spades but in hearts at least. Those unions were heavily staffed by discriminated-against immigrants who gained state concessions to avoid political instability during a bad patch. Once the times got good (supposedly), the rest of society and some of their children gradually reneged on those compacts—so as to stop helping presumed undeserving social undesirables. Like our parents and neighbors. The basic values of American society changed, but in matters of degree, not kind. Discrimination is less pervasive, but the perspective is still intact.
We won’t get Danish democratic socialism here in my life time, I regret to say. Which is not to say that we shouldn’t try: we should. Any gain we get is all net. . . . So to speak.
IMHO, Denmark has another distinct advantage beyond ethnic homogeneity – it’s small size both physically and in population. Some things just don’t work at certain sizes – There is no such thing as a cocktail party for 3 or a dinner party for 500. The Greeks thought democracy broke down at 10,000. (In
theory, not in practice, as Athens was far larger). But a
democracy of 300,000,000 is a contradiction in terms.
It works progressively less well as the size of the entity( village, town, city, state nation) increases.
Perhaps this is due to the ever increasing distance and correspondingly decreasing accountability between governed and government.
I wonder what was meant by Sweden fizzling? There was a banking crisis in the early nineties, but that one hit all the Nordic countries. Since then they have all had unbroken growth. I would say that demonstrates nicely the resilience of their socioeconomic structures. Granted, Sweden’s growth has been somewhat slower than that of it’s Nordic neighbors but it’s still better than the EU average. Though Norway’s just filthy rich with oil money. I think The Economist estimated something like 80,000 dollars in GDP per capita. First country to break 100,000?
Agree with prior posters regarding racial/ethnic homogeneity. The economists Alberto Alesina and Edward Glaeser did econometric work showing negative correlation between social spending and ethnic/racial diversity. The economic historian Peter Lindert reached the same conclusion.
Another factor may be that there are fewer risk averse Americans, than Europeans. And thus, more Americans that want a shot a ultra high net worth, even if that means less social spending for the disadvantaged. There may be econometrics to support this; I don’t know.
Regarding young people going into science or engineering, I see young people major in science or engineering, but I don’t really see them go into those fields. I see them become patent lawyers, bankers, consultants, fund managers, entrepreneurs, and business executives. And the reason is pretty simple. Scientists/engineers get worse pay and job security. In part, this is because of free trade agreemeents allowing outsourcing and immigration rules allowing H1B visas, but there are probably other reasons as well.
I haven’t studied Denmark in any detail, but I recalled this portion of a WSJ story from last year on Denmark’s energy policy:
“The result of these and other policies is that Denmark’s energy consumption — the amount of fuel it uses to heat its buildings, drive its cars and power its economy — has held stable for more than 30 years, even as the country’s gross domestic product has doubled, according to the International Energy Agency, a Paris group that tracks energy prices and policies. During the same period, energy consumption in the U.S. has risen 40%, while its GDP has quadrupled.”
http://postcarboncities.net/node/141
Leaving aside the issue of energy consumption for another day or post, the US has grown 2X as fast as Denmark over the last 30 years. Notwithstanding that income inequality is greater here, that is a substantial difference in the overall level of economic activity per capita. It is no doubt difficult to tease out causality to any particular policy element – but this dramatic a difference in growth rate ought to provoke some hard thinking about what Denmark’s approach is actually achieving in terms of economic performance.
Somebody made a good point. A massive long term destructive effect of too high income inequality is that the smartest take jobs that do not necessarily provide the max societal benefit over the long term. I am from Finland. Why do we have the best education system according to all studies? Two answers: it focuses on lifting the poor performers, the smart ones will be OK in any system. And the teachers are very smart and do not earn that much less than, say, a banker. As an other example: being a patent attorney is considered a loser job. I know, I am one. The best engineers would not entertain at all the idea of filing fine print disclosing the inventions of other folks.. The fact of the matter is that the US pay inequality will wreck the economy over long term. Professions such as banker, patent attorney are just leeches. The future depends on what the nation’s teachers and engineers are like. Moving money around is not productive.
anon 3:16pm,
When I said I saw engingeers/scientists in the US go into patent law, I wasn’t talking about patent prosecution. That is low end work. I was talking about patent litigation, which is very high margin work due to the high dollars at stake. Plus, patent prosecution work is shifting to India, which will depress wages; GE and IBM for example have patent prosecutors in India.
But I’ve seen engineers and scientists go into all sorts of fields. Also, in the past ten years, as HMOs gained power and reduced MD compensation, I have also seen MDs retire early or switch into business or law. HMOs aren’t the only thing that’s reduced MD pay. It’s also been depressed through immigration policy making it easy for foreign trained MD’s to enter the country.
I also don’t know if these trends hurt US GDP. The brain drain on other countries of having engineers, scientists, and MDs fleeing to the US to make more money, may hurt those countries GDPs and help the US’.
bobo,
I happen to have a good friend who is an engineer who gets involved in patent litigation at a well regarded firm and we’ve discussed the economics of his practice at some length.
Being a litigator of ANY sort is generally lucrative but requires a very particular type of personality. Just because you are an engineer and smart doesn’t mean you can be a patent litigator. If you are supporting the litigation, unless your are the billing partner (ie, it’s your client) the money is nice because you rack up a lot of hours on one matter, rather than having to divide your attention to lots of smaller matters. That make you more efficient, since juggling matters leads to more unbillable time. My observation is that’s how it works.
So from my observation, being a patent attorney if you are not the litigator or the billing partner isn’t as lucrative as you suggest, although it is certainly a nice living. My friend works like a dog (leaves home at 7 AM, rarely home before 9 and does not have a bad commute, can only take 2 weeks vacation a year, often has to work on those vacations and sometimes on weekends) and he is of counsel, billing at partner rates, makes roughly $250K a year, which in New York isn’t great relative to the hours put in and the taxes you pay here, particularly if you have kids in private school. And note he works entirely on business that he generates, which should give him better economics than most.
Now he doesn’t do only patent litigation, and when he does, it’s because he brought in the work, so his economics would be better than that of some who was asked to work on it (and that can and does include partners). Yes, his take will be better when he has brought in and is working on patent litigation (and he is very good strategically, not a face person. so he does add value and bill hours) but he gets a bump in comp when he brings in litigation, but it isn’t huge.
Mind you, this individual is over 55, having to put in the hours that someone 25-35 might be happy putting in to build a practice, but he is on a treadmill getting badly burned out. I would not be able to stand his lifestyle and the lack of control, despite having his own practice.
They also don’t tell you that the firms often have to write down their bills if the client doesn’t get the result out of a litigation that they wanted. Payment risk on litigation is greater than in bread and butter business, where you can estimate hours better.
There are seven firms in the US that are considered to be tops in IP, although any big shop will also have an IP department. So I imagine there also aren’t enough slots to accommodate the aspirants.
On the more general question:
Law and finance are supposed to be support functions to the productive sectors of the economy. Having too much GDP going to those activities is no different than have a bloated corporate overhead function. We have had 20+ years of stripping costs out of companies supposedly to make them more efficient, yet have wound up in the same place (or worse) by those costs being external and in some cases not as evident (ie, embedded in the costs of financings and thus not reported explicitly as expenses).
As to brain drain, we are not coming out as well as we think, I’ve seen articles and studies say that foreigners coming here often take the know-how they have learned here, go back after 5-20 years, and apply it there. That suggests we may be losing more than we gain (my buddy Amar Bhide’s forthcoming book looks at the globalization of innovation and argues that being skilled at the commercialization of innovation, which is what the US is good at, is more important than having the lead in fundamental research. The diaspora returning are getting insight into what may be America’s remaining competitive advantage).
Brian,
Something doesn’t add up with the WSJ numbers.
IMF nominal GDP/Capita estimates in US dollars:
Norway 83,922 (2nd highest in the world)
Iceland 63,830 (4th)
Denmark 57,261 (7th)
Sweden 49,655 (8th)
Finland 46,602 (9th)
USA 45,845 (11th)
PS if anybody wonders who is number 1, it’s Luxembourg. According to the IMF the country has already achieved 100,000 USD/Capita.
yves,
Engineers make less than lawyers, to say nothing of bankers, trades, fund managers, and hell even a lot of analysts. In 2006, the median engineer had comp of $74,000, while the median lawyer had comp of $102,500, and the interquartile range was between $69,910 and $145,600. And even though the spread isn’t huge in absolute dollars, it is significant in percentage terms, and in terms of utility given that we’re talking salaries of around $100,000 or less. Compared to the typical engineer or lawyer, it sounds like your friend is getting paid well. Although compared to a finance type, not so much.
Also, I’ve met many people who majored in science, math, or engineering that decided to do other things because they thought engineers didn’t get paid much. Some needed to force themselves to be sociable, even though they were introverts by nature.
bobo,
If my engineer-lawyer buddy drops dead of a heart attack, the extra dough ht makes will not have been worth it. I hear him complain every time we speak of how stressed, overworked and sleep deprived he is.
As someone who has chosen to be downwardly mobile (remember I once worked on the Street), these big ticket jobs often (not always, but often) come at a high personal price. These people have no lives. And lawyers in particular are getting squeezed badly on fees by corporate clients. The law. at least for firms that serve corporate clients, is no longer a comfortable, well paid profession. Like medicine, it has become a not as highly paid, high stress, time pressured occupation where you also face uncertainty on whether you will collect fully on your time spent.
And I agree with the comment from Finland that this is not serving our society to have so much talent sucked into service professions.
yves,
Tell your lawyer buddy to take a job at the federal government, say at the department of justice or whatever, he’d work less hours and still make more than an engineer!
You are probably right that it isn’t good for society to have so many people going into finance, law, and so on. However, I’m not sure these issues can really be addressed without Jimmy Carter levels of taxes and regulation and/or Pat Buchanon levels of barriers to trade and immigration.
“However, I’m not sure these issues can really be addressed without Jimmy Carter levels of taxes and regulation and/or Pat Buchanon levels of barriers to trade and immigration.”
If Bear Stearns (or LTCM) had been allowed to go bankrupt, the problem would have been resolved in a couple of years. It’s active support by the government that has prevented readjustment to the financial sector.
Unfortunately, IBs have understood that the proper approach to business is to take (or pretend to have taken) the economy as their hostage. “If I die, the hostage dies!” So what we have instead is a sort of asphyxia, with the financial sector draining out most of the oxygen in the room, leaving the rest to live miserable lives.
The analysis of the “Scandinavian miracle” inevitably avoids what in my view is the most important factor: demographics. Any country can engineer a giant one-time economic boom by precipitously dropping its population growth rate down to near zero. Coming from a normal population distribution curve (I’ll spare you the graphs), dropping the birth rate empties out the dependency pool (children, with relatively few elderly to start with), and results in a very high ratio of productive vs nonproductive workers. Consequently, society has huge amounts of surplus productivity to blow on social support programs, all the easier to implement because the number of dependents who receive social support is initially low.
All of that ends as the population bulge hits old age. As the bulk of the population reaches ages where their productivity drops, the demographics become heavily skewed toward nonproductive members. Societies that have set up generous retirement benefits will be doubly impacted as the elderly become, not just unproductive, but a massive drain on resources. Without internal replacement of workers, there is no end game other than massive importation of immigrant workers, resulting in an inevitable change of culture and an inevitable reduction in prosperity as the nation is flooded with impoverished foreigners.
Zero population growth is a neat little stunt, but it only works so long, and the European countries are starting to see the results come into focus. Thankfully, the U.S. has remained skeptical of the European model, as well it should, as the full results will take a generation to assess. Like home equity extraction, it works fantastically well until it all comes to an end. I suggest the touting of the success of “flexicurity” is premature, and that we revisit it in twenty years and see how well it has worked out.
P.S. Europe isn’t the only region to engineer a massive one-time economic boom through a low birth rate . . .
So, I’m just wondering…is that 50% tax burden in Denmark “all in”. Does that include useage fees, sales tax and the like?
Beacuse here I am in chicago….and I pay approx 28% in federal income taxes. Probably another 2.5-2.8 % in State income taxes (nominal rate is 3% of Federal AGI) 10% in sales taxes (don’t get me started on cigarette taxes) plus the implicit costs of Property taxes in my rent, and various license fees and industry taxes for my daily consumtpion (e.g business licences etc.) for what adds up to…I’m guessing another 5-10% of taxes on my gross earning.
Add that all together, and I am paying close to 50% is total taxes already. And what am I getting for that 50%? maybe the demographics and geography of America are not conducive to the Danish model, but seriously, if my total tax burden is relatively similar to that which I’d pay in Denmark, I feel it’s fair to ask…Can we not do better with what that 50% of my gross earnings I’m shelling out one way or another?
Hello,
I’m from France and I just wanted to say that here, there is a lot of talk about the danish “flexsecurity” and if we could make it work in France. Unfortunately, this system has a high price tag, especially training back people and I don’t know if the country will manage to get enough money to put this system into effect.
Sorry for my english, and thank you for your blog, it is great, I just love it.
Hi
I’m from Denmark so maybe I can clear up a few things.
Yes – we pay a lot of tax, but as Almuixe asked on average is probably not more than 50% but that is without VAT or Sales tax which is 25%. On top of that EVERYTHING is loaded with additional environmental taxes and so on. Cars for one thing are very expensive – at least 2 or 3 times the price you pay in the US.
It is also correct that taxrates are graded so you pay more the more you earn. from 60.000 dollars and up you pay 63% (ouch) – but 20% lower for the first 60.000 – so on average its about 50% for most people.
It’s a funny thing since the danish model has a very effective redistribution of income it is very difficult to talk about removing the highest tax rate of 63% eventhough the federal income it produces is quite small and would probably be countered by people working more if the got to keep more of their salary. But as soon as it is mentioned somebody starts to talk about tax cuts for the rich – eventhough the “rich” is probably maximum a 1-2000 people. It’s an inefficient tax that 40% of the population now pay. The state needs the income but it makes people not want to work after a point.
You need a lot of federal income to keep everything afloat such as healtcare, welfare, education and so on. Peripheral Visionary said that the boom is due to lower birth rate. That might have something to do with it, I don’t know. But please note that from a working population of just 3.5 million people – 900.000 adults between 18-65 are NOT working. They are on federal income of some kind – welfare, student grants, pre-retirement etc. So 2.6 million people is takin care of 2.7 million. Some of the same figures can be made for Norway and Sweden too.
So i think the birth rate issue is a bit of an oversimplification.
As always it is interesting to learn how ones situation is viewed upon from the outside. Sort of like looking in a mirror only with lots of filters.
I’m a Dane and I thought that showing a simplified version of my budget might be informative in this context. I’m 37, mostly single, work with IT in the public sector, own an apartment, drive a MX-5 and earns a salary slightly above average for my age and if I earned just a few bucks more the last of those would be taxed with some 63% (btw. Christian’s figures of only 1000-2000 being rich is way off).
The numbers (monthly) and with 5 KR = 1 US to make it easy:
6500 Salary
—————
850 Pension. Tax free now. 40% tax when I retire.
1800 Income tax (6500-850-1600)*44%
—————
3850 What I get in my hand.
(The 1600 is tax deduction. Personal and from interest paid on my apartment loan)
Then there are the taxes not based on income but on useage.
210 Property tax (1% of value yearly – fronzen to 2001 level)
75 Car tax (based on car gas consumption, mine does 27 mpg which is not good)
2040 Morgage and so. (Big 1 bedroom apartment)
200 Gas (2/3 of this is tax)
200 Car insurance
40 Insurance (theft, travel, accident…)
100 Unemployment ensurance
80 Broadband (20 of this is VAT)
150 Electricity (most of this is tax)
40 TV/Radio non-commercial (If you own a TV or have internet access you must pay)
—–
705 The rest which goes for food, phone, toys(The car), Unicef, clothes… I need to make more money :-)
I’m very happy with the system we have in Denmark. When I was younger I did consider moving to a country with lower taxes (The US, the UK…) but the more I learned of other countries the less I liked to live there. Sure I could do great personally with my IT background and so but the feeling of living in a place where no one must live on the streets, the environment is high on the agenda and with key words like freedom/equality/democracy/education/safety and basically a good living for everybody beats everything.
Sometimes I wish our car taxes would be lower since it’s basically (price+180%TAX)+25%VAT meaning buy one and pay for three. This means my little sports car is considered a luxury item. But in reality we have more than enough cars so we can afford them. This should illustrate how http://jp.dk/uknews/business/article1327660.ece