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Is Denmark our Window to an Obama New Economy?
By Mr. ToughMoneyLove | November 17, 2008
I was in Boston this weekend to visit my brother and to deliver a guest lecture to a college class taught by a friend and colleague. My wife and I had dinner with our friend and conversation eventually turned to the economy, investing for retirement, and to our families. It was interesting how these topics seemed to converge into a discussion of Denmark, of all places.
Our friend’s son has lived and worked in Denmark for about seven years. He was recruited from the U.S. for a temporary assignment to assist a Danish publisher in developing a web presence. The assignment morphed into a longer position and then became permanent after his son married a Danish woman. They have since had children of their own and it appears that this former U.S. techie is fully committed to his new Danish lifestyle.
Based on interactions with his son, our friend facetiously mentioned that Danish workers “seemed to get 200 paid holidays” per year on top of six weeks of vacation. Apparently, his son and his family are often traveling around Europe as tourists. They report high levels of contentment because, although taxes are high, health care and college education are basically free, taking huge spending and saving burdens off the finances of young families.
Although we are hard core free-market capitalists and low tax advocates, my friend and I had to agree that his son’s situation had a certain appeal for folks like us who are closing in on retirement.
On the trip back from Boston, I mentally revisited that conversation about Denmark. I started to wonder if there were aspects of the Danish economy that could give us a window into an economic future that President-Elect Obama might have in mind. Obviously, the next administration and Congress will have a lot of work to do to fix the mess we are in. But, in a few years and after the smoke clears, I can imagine hearing cries of “never again” from politicians and like-minded voters looking for ways to prevent a recurrence of the economic damage we are now experiencing. These folks will want to re-design our economy into one in which our government takes a more active role in eliminating many of the financial risks that are now borne almost entirely by its citizens. So, I decided to learn a little more about what is happening in Denmark, to see if it indeed gave us a window into a different economic future for us, and to determine what it might look like. This is what I found, essentially confirming what was reported by my friend’s son.
Healthcare in Denmark. The Danish health care system is among the most comprehensive in Europe. It covers virtually all physician and hospital care for all citizens. It also covers some dental care. 81% of the costs of health care is paid for by the government (from tax revenues.) The balance (mostly prescription and dental costs) is paid by the patients themselves or by insurance. Most health care facilities are government-owned and most providers are government employees. (Source: Healthcare in Denmark) However, much of the administration of the health care system is decentralized to the local governments. (Sort of like how our public school system is structured.)
An interesting feature of the Danish system is that after waiting two months for treatments at public hospitals (such as for elective surgery), citizens can choose to go to a private hospital or go abroad for care, with full payment by the government.
College Funding in Denmark. Denmark has a publicly funded education system that includes upper level vocational and college level programs. Grants from the state cover approximately 80% of educational funding. Funding is allocated to individual schools based on student population. Tuition is free but college students may have to pay their own living expenses. (Source: Danish Ministry of Education)
Taxes in Denmark. Danish citizens pay dearly for these valuable health care and education benefits. Those in the upper income category pay approximately 63% of their income in taxes. Unfortunately for the Danes, they hit that 63% rate at approximately $70,000 annual income. (Source: Danish Ministry of Taxation) By comparison, the current top marginal rate in the U.S. is 35% and that applies only to incomes above $372,000. Big difference.
Tough Money Love Commentary. Danish workers are highly mobile because of their excellent technical skills and fluency in English. It has been reported that many young adult workers are leaving Denmark because of the high tax rates. Nevertheless, unemployment in Denmark is a remarkably low 1.6%. Income tax rates are expected to decline in Denmark in 2009. Inflation in the Danish economy has recently declined to 3.7%. Thus, the Danish economy seems to be rocking along in decent shape. Denmark has been ranked number one in the world in technology advancement. The U.S. ranked seventh. Hmmm…
Given this data, it is not surprising that Denmark ranks quite high in several key life satisfaction indexes. Of course, we must remember that Denmark is a very small country (fewer that 6 million citizens) and spends very little on national defense. On the the other hand, those of us who are unhappy with U.S. health care deficiencies (a long-standing source of citizen discontent) and are now disgusted with recent economic events, can point to Denmark as a small-scale laboratory experiment of how things could work in the U.S. if radical changes are made. Does anyone not expect Obama to ask for radical changes by the latter stages of his first term? After all, he has Charles Rangel ready with the mother of all tax bills and tax advocate Robert Reich as an advisor. With Democrats controlling Congress, what’s to stop them?
Could the Danish System Work Here? Readers are no doubt guffawing at the suggestion that any Congress would bump U.S. income tax rates to 63% of incomes over $70,000. I would agree with such skepticism as an initial proposition. But don’t forget that there are historical precedents for marginal rates in the U.S. as high as 91% (1951-1963) and 70% as recently as 1982. (Source: Tax Policy Center) Four years ago would these same skeptics guffawed at the idea that an African-American who had the most liberal voting record in the Senate would be elected President? Think about it.
If it is certain that rates will go up just to pay for recent bailouts and rescues, how much more would it take to convince middle income voters that tax rates should go even higher to pay for health care and college educations for their children?
Finally, do not be surprised if baby boomers - even those who have been fiscally conservative in the past - slowly change their attitudes about taxation and health care if their beaten down retirement accounts do not start recovering soon. Health care is a major cost concern for boomers, and with their collective net worth losing trillions this fall, higher taxes paid by others for universal boomer health care will look pretty good. And boomers vote in large numbers. Mr. ToughMoneyLove would prefer to keep my money for myself but if the government is going to take more of it in taxes, it better spend it on something better than more bridges to nowhere.
This was an interesting exercise for Mr. ToughMoneyLove. Obama appears to be a politician that has more of a “world view” than many of his predecessors. I can imagine him taking that world view to heart when he gets around to looking for solutions to health care and college funding problems that he has talked about. At a lot of levels, a country like Denmark appears to have it together and most of its citizens seem to be content with the “tax and spend” trade-offs. So would Obama look at what a country like Denmark has done and be happy with it? Would you? Could that be the direction we are moving? 
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Topics: Economics |
November 17th, 2008 at 11:11 am
A related issue is Obama’s membership in Generation Jones (between the Boomers and Generation X). I’ve seen quite a few very credible experts emphatically insist that Obama is part of GenJones; if Obama’s generational identity is of interest to you, you should definitely click this link…it goes to a page filled with lots of articles and video of famous people arguing that Obama is a GenJoneser: http://www.generationjones.com/2008election.html
November 17th, 2008 at 12:26 pm
While I can appreciate what Denmark has done for its citizens in terms of healthcare, the danger of raising taxes on the highly educated and more entrepreneurial minds is one of alienation. You mention this yourself by linking to the NY Times article, and I think this will certainly be an issue for those who do not subscribe to what I consider a double edge sword approach to taxation.
In the last two weeks, I’ve had conversations with numerous friends who are Indian, Brazilian, or even 10th generation Americans who are top earners that are considering leaving the US to reside in more tax friendly nations. This is way out into the future of course, but who among us would not consider leaving if we can keep more of what we earn (or have earned), while everyone else remained content with being among the status quo reaps the rewards.
It’s the old argument against working for The State versus working for yourself. I believe Russia tried this once in the past, and if memory serves, they failed.
November 17th, 2008 at 3:48 pm
Matt: I think the reactions of your friends are typical of those who are or expect to be wealthy and therefore do not need the resources that a government like Denmark provides. The reactions of middle income earners without significant wealth are likely to be much different. The question is how will they vote when the time comes?
November 17th, 2008 at 3:51 pm
Sarah: Your comment is one reason why I love to blog. Until I heard it from you, I had never even heard of “Generation Jones.” Now I know and will try to learn more. Thanks for sharing.
November 17th, 2008 at 4:20 pm
I’m no expert, but I don’t think that Denmark has ever been the country that “feeds the world” or “gives more private, chartiable dollars than any other country” or that has ever been a “beacon of freedom” or anything else. I’m fairly certain that the US provides more food that is consumed globally than any other nation, and I’m fairly certain that we give more (charitably) than any other nation… if we go the way of Socialism… would we produce the food that feeds the world? Would we be able to give charitably to the world in the amounts that we currently give? How would that change the world?? Sure, Denmark… 6 million people total. That’s like… uhhh… Phoenix, AZ. But multiply that into the size and specifics of the US… I think the entire world suffers. Not just “mean, evil rich people” (tongue in cheek). If the incentive to work your tail off so that you can make more income (by growing something, creating something, etc) is immediately rewarded by the IRS taking 60% of it… would we still work so hard? (I wouldn’t. I work for my kid’s future; if the IRS is going to take away the dollars I intended to feed, clothe, house, and educate my kids with… we’ll make do with less.) Just some ponderings.
November 17th, 2008 at 4:37 pm
Melissa - Excellent “ponderings.” I agree that if Denmark were as large as the US, the cost of providing all of the social services would increase by an even greater proportion. As for the other things that the US does as a “world citizen” or world “meddler” (depending on your point of view), there are those (e.g., Ron Paul) who would favor ending all of that and concentrating on domestic needs.
November 18th, 2008 at 3:20 am
Melissa: Denmark spends over 1% of their GDP on foreign aid. The US spends about 0.1% (yes, including charity), the least of all western countries.
As for the economic incentives and their effect:
“Denmark has a GDP per capita higher than that of most European countries, and 15-20% higher than that of the United States.[41] Denmark is one of the most competitive economies in the world according to World Economic Forum 2008 report, IMD, and The Economist.[42] According to World Bank Group, Denmark has the most flexible labor market in Europe; the policy is called flexicurity. It is easy to hire, fire, and find a job.” (Wikipedia)
November 18th, 2008 at 8:32 am
Jobo: Yet more positive economic data about Denmark. Thanks for sharing it. The flexicurity policy (which I had heard about before) is unique because in most European countries it can be very difficult to terminate a bad employee.
November 24th, 2008 at 12:54 pm
Yes, you do pay higher taxes in Denmark, but you also get something in return. Besides, if you factor in the costs you have to bear yourself here in the US, are we really better off financially? If you make an average income of $45,000 and you have three kids like you do, you can probably not send all three of them to college. In Denmark they can all go to college - and they don’t even have to be specially gifted. That gives these three Danish kids a head-start in today’s knowledge economy that dominates the world. Doesn’t sounds like such a bad idea.
As for health-care, I would say the situation is similar especially if you are one of the nearly 20% Americans who do not have health-care.
Of course, well-to-do people have the best lives in places like the US or Mexico (which has a very low take of taxes).
December 4th, 2008 at 12:33 pm
Well, since Im danish, I thought that I would comment on this issue.
Matt - First of all, the Russia comparison is getting old. You can’t mention Russia every time anybody mentions tax raises and thereby justify the opposing view…..
The argument that highly educated people is going to leave for country’s with lower tax rates has been said here for decades but someway this articles still reports that Denmark is “ranked number one in the world in technology advancement”….Now that wouldn’t be possible if all our highly educated people was leaving right?
Mellissa - Its correct that Denmark isn’t the country that “feeds the world” in terms of private charity but the thats because we paid enormous amounts in foreign aide.
Its not normal to pay large tips to waiters here in Denmark….Is that because we are rude? No, its because the minimum wage is much higher and waiters aren’t dependent on tips to earn their living.
About the “Beacon of Freedom” thing, I truly hope that you are sarcastic. That is a statement that is only made by Americans who hasn’t visited European country’s(Or Canada for that matter).
I love America, but the whole Beacon of Freedom is really a product of propaganda. By what comparison is the US a beacon of freedom and what criteria is it based upon`?
I don’t think the Danish model would work in the US, BUT americans need to open their mind and take a look at the different political systems instead of being stubborn and have a very arrogant “Our way is the only way” approach that seems to be the case.
Remember that while Russians was the target of pro-soviet propaganda during the cold war, Americans was the target of anti-socialism propaganda during the same time….