A Lesson For The “Raise Taxes On The Rich” Crowd From Denmark

by John Hawkins | December 6, 2007 10:50 am

On the left, there doesn’t seem to be an end to the number of new government programs that the Left wants to create and fund by “taxing the rich.”

Setting aside the fact that it is unfair to harshly penalize the rich for their success — given that most of them have worked hard, worked smart, and made a lot of sacrifices to get where they are — people’s behavior changes in response to the circumstances they face.

If you jack the taxes on the rich way up, they’ll find ways to shelter their money, move to another country, or possibly just decide to make less income and live on what they have already accumulated and paid taxes on.

Are you a liberal who believes that people won’t change their behavior based on taxes? Well, then I’d suggest you take a look at what’s happening in Denmark[1],

As a self-employed software engineer, Thomas Sorensen broadcasts his qualifications to potential employers across Europe and the Middle East. But to the ones in his native Denmark, he is simply unavailable.

Settled in Frankfurt, where he handles computer security for a major Swiss corporation, Sorensen, 34, has no plans to return to the days of paying sky-high Danish taxes. Still, an unknowing headhunter does occasionally pass his name to Danish companies.

“When I get an e-mail from them, I either respond negatively but politely,” Sorensen said. “Or I don’t respond at all.”

…People like Sorensen, and there are many, epitomize the challenges facing the small Nordic country, long viewed across Europe as an example of how to keep an economy thriving and a society equal.

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.

…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.

…”When you are at 63 percent tax, you don’t look forward to the evaluation with the boss to get a raise,” Sorensen said. “You look for more vacation or a training course in the tropics – something that you get the full benefit of.”

There you go, folks. You’ve just read about a great example of tax rates effecting behavior.

Now granted, it’s a little easier for people to move around in the European Union than it is for most Americans to move to another country, but that’s not the case for the rich. They can move and if they have enough money, they can choose to just live on the fortune they’ve already earned or go live on a tropical island somewhere with a low tax rate, sipping margaritas for the rest of their lives. Then what happens to the tax revenue they’re producing? What about the jobs that they’re providing? What about the loans they’re giving to entrepreneurs?

Remember that the next time the Democrats promise some new government program that will be “free” to most people because the rich will have to pay for it with their taxes.

  1. Denmark: http://www.iht.com/articles/2007/12/05/business/labor.php

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