
Steve Forbes was in Denmark this week on a European tour, meeting with political and business leaders. His main message was that while Denmark has arguably the strongest economy in Europe right now, the high danish taxes are limiting our economic growth.
And danish taxes are very high: The highest tax bracket kicks in after only 40.000$ earned, and you pay 60% taxes on everything you earn over that. This money is used to finance a very high level of public services, including free health care, schools and universities for everybody.
The high tax level also finances what is called the danish flex-security model: In Denmark it’s relatively easy to fire employess (flexibility) but unemployed danes enjoy great benefits (security). Compare this to Sweden where it’s very, very difficult to lay employees off because the unions have enormous influence or to the US where unemployment benefits are not as generous.
Forbes argues that the economic success Denmark is currently enjoying comes in spite of the high tax levels, and said “just imagine what you could achieve with lower taxes.” His argument goes something like this:
- Because taxes are so high, working more doesn’t pay much, therefore people work less
- If taxes were lower (say 40% in the top bracket instead of 60%) people would work more
- People would also make more money, meaning the state would take in the same amount of money in taxes
- People working harder would result in increased economic growth
I think he’s wrong, wrong, wrong, and I’ll tell you why!
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