If We Want to Be Like Denmark, Whom Do We Tax?

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Bernie Sanders Holds Election Night Rally In West Virginia
Bernie Sanders is sweating this math problem.Photo: John Sommers II/2016 Getty Images

If Democrats want to build a generous welfare state like Denmark’s — and they should! — they’ll have to find a way to convince most Americans to pay higher taxes. Because the political willpower for higher middle-class taxes currently does not exist, Democrats instead rely on tax hikes exclusively on the rich, which helps, but doesn’t provide enough potential revenue to fund a full-scale social democracy. One partial solution to this problem is to increase revenue through public-health-related taxes on things like tobacco or sugary soda. I recently pointed out the oddity of Bernie Sanders’s opposition to such a tax, given that Sanders is a proponent of both a Danish-style social democracy in general and a health-care plan that raises taxes on low-income earners in particular. Matt Bruenig takes issue, focusing on the question of how much higher taxes are in Denmark. I wrote that the Danes “do not tax the rich all that much more heavily than the United States does.” Bruenig counters, “This is simply untrue. The Nordic countries do tax the rich much more heavily than the US does.

It’s not untrue, and Bruenig does not really support his claim. He produces a chart showing that the top labor tax rate in Denmark is about 56 percent, compared with 47 percent in the United States. If that data did fully answer the question of how much the rich are taxed, it would hardly make my claim “simply untrue” — after all, I concede that Denmark does tax the rich at a higher rate, just not “all that much more heavily.” Bruenig is resting an awful lot of rhetorical weight on just how large of a difference qualifies as “all that much.”

In any case, his numbers do not settle the question. Labor taxes are only one way in which the rich are taxed. There is also taxation of business income, capital gains, dividends, and inheritances. Denmark’s “high rates on personal income,” as Jonathan Cohn wrote in 2007, “mask relatively low rates on investment capital and corporate earnings.” The overall difference in tax rates on the rich is less than the figure Bruenig displays.

I was unable to find a comprehensive comparison of the total effective tax rate faced by the rich in the U.S. and Denmark, which is why I fell back on the loose terminology that nonetheless set off Bruenig. Following up on Bruenig’s dissent, I asked Lane Kenworthy — an economist who has argued for bringing social democracy to the U.S., and whose work on the topic has influenced me — if he had more precise data. He replied:

What we need for Denmark (and other rich countries) is the effective tax rate paid by the top 1% and at other points in the distribution, with all types of taxes included — as CTJ has done for the US at http://ctj.org/ctjreports/2015/04/who_pays_taxes_in_america_in_2015.php#.VyEoAWbmlu4. To my knowledge we don’t have that.

Your piece made the point, assuming I understand you, that Denmark’s tax system isn’t more progressive than ours. Bruenig is making the point (though he doesn’t have the data) that Denmark’s effective tax rate on the 1% is higher than ours. Both are true. As best I can tell, Denmark taxes everyone at a higher rate than we do, and their tax system is no more progressive than ours — probably a bit less progressive (the tax wedges Bruenig looks at don’t include consumption/VAT taxes).

A 2008 post by Kenworthy shows that the Danish tax code does not redistribute income more aggressively than the American tax code. (Differences in redistribution through taxes are represented by the white circles.) The difference is all on the spending side (the black diamonds):

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Again, given the political constraints posed by public opinion in the U.S., it makes sense to focus on heavier taxes on the rich. It also makes sense to find opportunities for other sources of revenue to fund worthy investments, like prekindergarten education in Philadelphia. The point of my post was that it is ideologically self-defeating for Bernie Sanders to oppose such an effort. Do Bruenig and other Sanders enthusiasts disagree?