Removing the top tax rate could boost the state’s bottom line, three prominent economists say.
The economists – two members of the Danish Economic Council’s (Det Økonomiske Råd) and an economics professor at the University of Copenhagen – released a study on Monday that concluded that removing the top tax rate could lead to more people pursuing higher-paying careers, thus increasing the total amount of tax deposited into state coffers.
“The analysis, which is thorough and conducted by three very competent economists, strengthens the argument for considerably lowering the top tax rate,” Jens Hauch, the chief economist with the Economic Council, told Børsen.
The top tax rate (topskat) is a 15 percent tax imposed upon salaries above 449,100 kroner ($82,000) after labour market contributions (arbejdsmarkedsbidrag). According to the tax ministry, approximately 500,000 residents will pay the top tax rate in 2014.
The finance ministry has previously said that removing the top tax would cost the state 6.8 billion kroner, while Tax Minister Morten Østergaard recently estimated it would cost 10.6 billion kroner. But the new analysis has concluded that by calculating the number of people who would switch to better-paid jobs in the absence of the top tax rate, it could actually result in a net benefit of 800 million kroner.
The new analysis was immediately seized upon by both opponents and proponents of removing the top tax rate.
Anders Samuelsen of the libertarian party Liberal Alliance said the analysis "concluded what LA long has said: that it will put more money in the treasury to remove the top tax."
“The 800 million that these bright minds have calculated will flow into the public purse can be used by [the left-wing parties] to create a larger public sector, if that’s really what they want,” Samuelsen wrote on Facebook. “The rest of us can fight for that money to go towards even lower taxes and more private welfare.”
Industry lobby organization Dansk Industri (DI) said that scrapping the top tax would generate growth in the national economy.
“Whether it is free to remove the top tax or it costs six or seven billion kroner like the finance ministry thinks, a lower or completely scrapped top tax is the cheapest way to more growth and prosperity,” DI’s Jacob Bræstrup told Ritzau.
The far-left Red-Green Alliance (Enhedslisten - EL) cast doubt upon the study.
“No one can say if these [higher-paying] jobs can be found or what certainty you have that people will work more [without the top tax rate],” EL’s Per Clausen told Ritzau. “On top of that, it would lead to a dramatic increase in inequality, which I don’t find sensible.”
DI rejected the inequality argument.
“Even without the top tax rate, Denmark would be among the most equal societies in the world,” Bræstrup said.