It’s no secret to some corners of the internet that I’m a big fan of Denmark. Denmark has a high level of taxation, and public expenditure…but if you remove those two categories, Denmark is actually the most free-market nation in the world. Indeed, the difference between Denmark and Singapore seems to be based upon how they go about achieving a high level of welfare. Singapore uses different types of coercion (mandatory savings) to “help” people, and is thus able to keep taxes and public expenditure low. On the other hand, Denmark has a very generous welfare state…however, they seem to be changing their tax regime (albeit slowly) toward a much more efficient taxation. For instance, there is no long-term capital gains tax or tax on dividends, and a path to no tax on capital is definitely in view (sorry leftist-libearls, I know it’s unfair, but taxing capital is just not worth the adverse effects on savings and investment). Corporate tax rates are 30%. Individual income taxes fall into three brackets; 39%, 45%, and 60% — with a 25% VAT. Those are some pretty steep income tax rates, but welfare states are expensive. One key difference, however, is that in Denmark, taxes are withheld at the source.
The instigation for this post comes from Ezra Klein, who has an article up on Denmark, part of his series outlining different governmental systems. Some excerpts:
Denmark is a constitutional monarchy with a 179-member unicameral parliament called the Folketing. There used to be another house of parliament, called the Landsting, which was indirectly elected by larger districts than those for the Folketing, much like the U.S. Senate prior to the 17th amendment. The Landsting also required members to meet a certain standard of wealth, and for many years had seats set aside for appointment by the monarch. However, in 1953 a referendum of the Danish people abolished the Landsting, leaving the Folketing as the only house of parliament.
Can you imagine something so radical happening in the United States? I’m not talking about abolishing the Senate, which is Constitutionally mandated…but simply abolishing something like the Department of Education? The Federal Communications Commission? The Department of Homeland Security? It seems near impossible, and yet, they abolished an entire wing of government in Denmark!
Like Germany but unlike France or England, it is exceedingly rare for a single party to gain a majority in parliament. For example, the Liberal Party (Venstre), which is a center-right, free-market liberal grouping, holds the most seats in parliament at 46 – a mere 25.7 percent of the total.
That’s incredible! There is actually a right-wing liberal party in Denmark…that holds a significant portion of seats! I would likely trade their center-left parties for US Democrats, as well :P.
The entire series is well worth a read. One thing that I note about Denmark; they have few elections (as in, number of people that are in elected positions). The US suffers at all levels for it’s electoral fetishism. As you may well know, I favor electoral reductionism…much like Denmark!
Not all is rosy, though. As a right-wing liberal, I find 50% tax rates on income to be quite oppressive. Also, Denmark is oppressive toward “high-ability and materialistic” people (reflected in, or a reflection of high taxation?). Of course, government support non-withstanding, the middle class in Denmark are noticeably poorer (materially), but they also have the security of a huge welfare state to fall back on. Also, I do like this quote from Byran Caplan:
I’m not sure about the meat consumption. But otherwise, matters were worse than I expected – especially in Denmark, where I got to see the “happiest people on earth” miserably bike to work in the rain.