In response to my post on whether high taxes really explain Denmark’s brain drain, Jacob Braestrup, adviser on tax policy to the Confederation of Danish Industries, had this to say:
I’m sorry, but I fail to see your point.
As you yourself point out, “Taxes are the only one of those top four factors that Danish politicians can do much about”. So while it may be that more Danish expats point to the fact that they simply “felt like trying to live in another country” (88 percent of the more than 1000 polled list this as contributing to their decision to move abroad either to “some” or “a high” degree); and that many also list “better career opportunities” as a contribution factor (67 percent) – this can hardly lead to any meaningful policy recommendations. But for anyone having spent just a brief stint in cold, dark, windy Denmark, it must give food for thought that “high taxes” are neck and neck with “Culture and/or physical possibilities (e.g. climate)” as the third most cited contributing factor (58 and 59 percent respectively) for those having fled Denmark. Incidentally, looking only at those responding “to a high degree”, “high taxes” actually beat the awful weather by 35 percent against 30!
Had the survey included “the invention of the airplane” or “Christopher Columbus” these reasons too would probably be quite popular – but again, policy lessons would be hard to draw. Not so with “high taxes”! Most of the polled expats report to have an income which – in Denmark – would face a punitive marginal tax of 63 percent. The top tax bracket (extra 15 percentage points) is so effective in keeping the talented abroad that it raises just two percent of the total tax revenue.
In case anybody should wonder what the fifth most popular reason for leaving is, the answer is “better pay” (48 percent of respondents) – a factor not easily separated from taxes either.
Point taken. But the reason I wrote the post, and the reason I keep writing about Denmark, has less to do with Denmark’s particular challenges than with the narrative that we in the English-speaking world tend to impose upon them. In the early 1990s, when Scandinavia in general was struggling economically, the Anglo-American media (and lots of Anglo-American economists) were quick to blame all the problems on high taxes and the welfare state. Peter Lindert has a chapter in his book Growing Public: Social Spending and Economic Growth Since the Eighteenth Century titled “On the Well Known Demise of the Swedish Welfare State,” in which he details this media consensus and how it was proved wrong as Sweden and its neighbors recovered famously in the latter half of the 1990s without cutting taxes dramatically or dismantling social programs. Having more or less agreed with that media consensus in the early 1990s, I am now somewhat dubious of attempts to blame economic problems in Scandinavian countries entirely on tax rates.
And all of this of course has relevance for the U.S. because lots of folks here like to equate high economic competitiveness with low tax rates. And the lesson from Scandinavia is that it’s more complicated than that.