Friday, December 07, 2007

The High Cost of High Taxation

Liberals frequently display disgust at capitalism and those "greedy" people who think they should spend their incomes as they choose, not as the government chooses. They really don't want to believe that high taxation causes people to leave.

Well, if they don't believe it, they just need to look at Denmark, where highly educated Danes are leaving in droves for lower taxation countries.

Young Danes, often schooled abroad and inevitably fluent in English, are primed to quit Denmark for greener pastures. One reason is the income tax rate, which can reach 63 percent...

Denmark is the home of "flexicurity," the catchy name given to a system that pays ample unemployment and welfare benefits but, unusually in Europe, imposes almost no restrictions on hiring and firing by employers. The mixture has served Denmark well, and its economy barreled ahead in 2006 by 3.5 percent, one of the best performances in western Europe. The country is effectively at full employment.

But success has given rise to an anxious search for talent among Danish companies, and focused attention on émigrés like Sorensen. The Organization for Economic Cooperation and Development, which is based in Paris, projects that Denmark's growth rate will fall to an annual rate of slightly more than 1 percent for the five years beginning in 2009, reflecting a dwindling supply of a vital input for any economy: labor.

The problem, employers and economists believe, has a lot to do with the 63 percent marginal tax rate paid by top earners in Denmark - a level that hits anyone making more than 360,000 Danish kroner, or about $70,000. That same tax rate underpins such effective income redistribution that Denmark is the most nearly equal society in the world, in that wealth is more evenly spread than anywhere else.

Ah, yes. Income equity, the brass ring of liberal theology. It's nice if everyone has an equal piece of the pie, but why should one person bust their ass so someone else gets a free ride? And how well are you really living if you make $70k but only get to keep less than $20k of it?