Are young Danes really emigrating because of high taxes?

Funny you mention luring skilled non-Danish workers. I tried deperately to get a work permit to work in a Copenhagen hospital. I am a vascular ultrasound specialist. It was nearly impossible due to the union running interference. By the time I received it eight months later, I had accepted another position.

thanks for pointing out this piece of propaganda that looks like it came directly out of Grover Norquist's shop. Its interesting that the article would quote The Confederation of Danish Industries yet make no reference to the study you cited....

I have high-level connections at Dansk Industri that the Times reporter surely did not.

The poll results were never widely publicized, presumably because they didn't entirely back up DI's arguments. Although my high-level connections would argue that if you just look the people who said they agreed with one or the other reason "very much," high taxes at least come in third as a reason for leaving Denmark rather than fourth.

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.

Sincerely,
Jacob Braestrup
Adviser, Tax Policy
Confederation of Danish Industries

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.

The fact that only 2% of tax revenue comes from the top tax bracket doesn't tell us that taxes are "keeping the talented abroad" --- what it actually tells us is that Denmark's income distribution is far more rational than most of the rest of the world -- it sounds like people are rewarded by how much they contribute to society, not how much they can grab from it.

Basically, Denmark's system discourages greed for greed's sake, and is set up to ensure that ALL of its people enjoy a good standard of living, rather than a system in which there is massive poverty and suffering and indescribably wealth and luxury within walking distance of each other.

I have done business in the Skandinavian countries for more than thirty years. In all the time I have been traveling there, it has been the same situation.

Young, intelligent, well educated Danes go abroad for 5-10 years to build up some personal wealth. Then, many of them go back when their children are young enough to still fit into the system.

The social system in Denmark is pretty great. It's as close to a true "welfare state" as you can possibly imagine. But with a 63% top marginal tax rate, it's practically impossible to build up a significant personal wealth.

So, they go abroad, do very well in international businesses, get their personal stake, and go back to where the life styles are among the best in the world. Most of the Danes I have met, as well as Sweedes and Norwegians, have wished for a lower maximum tax rate but they are not a obsessed with it as we are here in the US.

Before we condemn this, let's look at some of the "life style" surveys that put Denmark way above the US in some of the most important areas such as health care, housing, education etc.

But with a 63% top marginal tax rate, it's practically impossible to build up a significant personal wealth.

while I agree with the rest of your post, if the guy from CDI is corrent in saying that only 2% of Denmark's income taxes comes from the 63% rate, the reason that people can't "build up a significant personal wealth" has very little to do with the tax rate, and everything to do with how income is distributed. If you're making a million a year, you can still build a personal fortune.

I enjoy reading all the information about Denmark and Sweden, especially from those who work and do business there. I am planning to relocate to either Copenhagen or Malmo/Skane within a year and would love to hear from any of you who can give me the "real" insider tips for just that. I should point out that my daughter is engaged to a Danish national, which is the reason for my relocation.

I appreciate any comments you care to send me, as long as they are honest!

Thanks All.

Jacob,

As a market researcher, I'm going to make a couple points based on this comment: "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."

I will admit to several things. I don't have the full report in my hands or the survey protocols. Based on Justin's report, you can't make any policy recommendations based on this data because you have no information regarding how a different tax rate might affect emigration of Danish citizens. You have a factoid only.

Moreover, you have only stated reasons--there is every reason to belief that actual reason may be different (this is a psychologic phenomenon-meaning tax rate could realistically be a bigger issue). However, you would need to do a trade-off analysis of some sort in order to obtain that information. In fact as a research professional, I would recommend that-potentially a discrete choice protocol would be best.

@p_lukasiak: I think he's talking about a very small top bracket that's taxed at 78%. My impression is that something like 1/3 of the workforce is in the 63% bracket. But I'll ask him.

Wouldn't it be useful to know how many Danes actually emigrate? The assumption seems to be that the answer is: lots. But you don't actually meet a lot of Danes overseas, compared with Irish, say (and Irish taxes are very low)...

The raw numbers for 2006, from Dansk Statistik, were 56,750 people immigrating to Denmark and 46,786 emigrating from Denmark. So they actually had a net inflow. Apparently there's concern that there's a net outflow of high income/high skill types, but if so I imagine it's in the low four digits annually.

@p_lukasiak: I think he's talking about a very small top bracket that's taxed at 78%. My impression is that something like 1/3 of the workforce is in the 63% bracket. But I'll ask him.

Justin...
according to this
http://www.skm.dk/foreign/facts_and_figures/1602.html
the actual maximum rate approaches 67.8% (there is a 59% ceiling, but that does not include the .7% church levy, or the 8% "labor market contributions."

Of course, that is the tax on wages (capital gains max out at 43%) and doesn't include the numerous "deductions" (7800 "personal" deduction, 2750 for small children--slightly less for older kids, etc).

see http://www.skm.dk/foreign/facts_and_figures/1600.html

(oddly enough, there doesn't appear to be a spousal deduction...perhaps you get a second "personal" deduction for a non working spouse?)

Finally, it should be noted that this covers both federal and local taxes. (until last year, local and county taxes were 32.6% -- apparently, "county" taxes were pretty much a "health care" levy, because as of 2007 there is no county tax, local taxes are 24.6%, and there is a new 8% "health care contribution".)

Thus, if one wants to compare US to Danish FEDERAL taxation, the actual "income tax" rate maxes out at 26.48%.... plus there is an 8% "unemployment" tax (which is what I assume a "labor contribution" is) and an 8% "health care" levy (which, IMHO, is quite reasonable, considering that in 2004, premiums for family coverage from employers averaged $9,950 in the USA, and in 2005 the average per person cost for health care was $6700, and health care accounted for 16% of GDP)

Hey Justin,

Did that study require respondents to complete any sort of trade-off involving varying levels of taxation with other benefits? If not, he really doesn't have a position to say that they can make any public policy based on the result.

People might complain about taxes, but as I said earlier, it was all stated motivations. Without some sort of implicit (as opposed to explicit) research, we can't say anything about the actual role taxation levels played.

@Corey: No, it was just a poll where they listed 11 possible reasons for leaving Denmark and respondees said whether agreed very much ("i høj grad"), somewhat ("i nogen grad"), to a lesser degree ("i mindre grad"), or not at all.

@paul_lukasiak: I've gotten different numbers on the tax rates depending on who I talked to and which government website I consulted. But you're definitely right that some of the taxes are really user fees for services that cost a lot in the U.S.

Yeah...Jacob has no basis at all for any attempts to formulate public policy based on any of the results of the study.

All you can really say about it is that a bunch of people went, "Sure yeah...I'll agree with that." There's no action standard at all. And it doesn't even compare the stay-at-home group.

I see serious methodological issues with the study. It really looks like an MBA through together a survey without consulting a research professional.

I see serious methodological issues with the study.

Clearly this is a result of the Danish brain drain, which is of course caused by high tax rates.

Let me just reply to some of the comments and clear some misunderstandings

@p_lukasiak
You are correct that income distribution In Denmark is very flat. But that should only be a further argument for scrapping the highest tax bracket
1: it produces almost no revenue
2: income distribution is flat already, so no reason to have a top marginal tax for the sake of making taking from the top income earners simply to make society less unequal.

Denmark is at current the most equal society in the world (using gini-coefficient). If the top income tax was reduced from 63 to 49 percent (by abolishing the top income tax bracket) we would drop one spot, falling behind Sweden. So we would become the second-most equal country in the world.

@Correy
This was a proper survey conducted as surveys are normally conducted. You can have the same “methodological reservations” as you can have with any survey asking, say, who people will vote for as president. Here more than 1,000 Danish expats were asked a range of questions, including what factors contributed to them leaving the country, and also: what factors keep them from returning.

Her are the answers to what contributed to people leaving (percentage saying this factor contributed “to some degree" or " to a high degree”) [other options were: “to a lesser degree”, “not at all” and “don't know”]:
I felt like trying to live in another country (88)
I wanted to improve my professional competence and career options (67)
Culture and/or physical factors (e.g. climate) (58)
The overall level of taxes and duties is lower abroad (58)
The possibility for higher salary abroad (48)
More attractive environment for entrepreneurs abroad (40)
Family reasons (39)
My company has offered a foreign posting (26)
My spouse/partner has been offered a job / would like to work abroad (25)
More attractive environment for research abroad (16)
Public service is better abroad (9)

Here are the answers to what contributes to expats not returning. Asked only to those expats saying they do not contemplate returning (38 percent). Another 27 percent were planning to return, and 35 percent were unsure. (Again: percentage saying this factor contributes “to some degree" or " to a high degree” to the decision not to return):
Family reasons (e.g. family has settled abroad) (80)
Culture and/or physical factors (e.g. climate) is more attractive abroad (78)
Level of taxes and duties is lower abroad (67)
Bigger career challenges abroad (63)
My spouse/partner has a job / would like to work abroad (62)
Denmark does not offer dual citizenship (61)
I want to be a pensioner abroad (46)
Pay level is higher abroad (46)
More attractive environment for entrepreneurs abroad (43)
Quality of public service is better abroad (18)
More attractive environment for research abroad (18)
The possibility of using special tax systems for foreigners abroad (10)
Lack of possibility to use the special Danish low tax system for foreigners (5)

We even asked those not planning to return whether abolishing the top highest income tax brackets would make them contemplate moving back to Denmark (lowering top income tax from 63 to 44 percent. Only 41 percent said “not at all”, 28 percent said to e lesser degree, 21 “to some degree” and 7 percent “to a high degree”.

BTW: although I agree that sated reasons may differ from actual reasons, anecdotal evidence suggest, this should pull in the other direction in this case. Many expats have an almost mythical memory of Denmark as a country with a perfect welfare state, and tend to “forget” the immense tax burden they suffered while living there – now that the pay way less ;o)

@Justin, paul_lukasiak and others (on the Danish tax system):
Lowest marginal tax on labour income: 43-44 percent
Middle: 49 percent (middle tax bracket contributes around 1 percent of tax revenue)
Top: 63 percent (top tax bracket contributes around two percent of total tax revenue)

Also, you are both right in pointing out that the Danish tax revenue is used to cover some costs that taxpayers would incur any way. The point is, however, that while such cost are fixed abroad (user fees, insurance premiums, etc., they are in Denmark – because they are covered through taxes – linked to income. Thus: the higher the income, the bigger the incentive to go abroad. And vice versa!