‘Topskat’: What is Denmark’s high income tax bracket?
One of the big talking points of the parliamentary election was part of the Danish income tax system called 'topskat', which is a type of income tax for high earners. Here we explain how it works and whether it applies to you.
Published: 8 November 2022 14:45 CET
Part of the Danish income tax system called 'topskat' is a type of income tax for high earners. Photo: Sarah Christine Nørgaard/Scanpix 2017
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Emily, I always enjoy your columns. Topskat, just to, I hope, clarify, is called a “progressive income tax.” It is based on the undeniable notion that the next kroner of income is much more important to a person’s well being for a low income earner than for a high income earner. A person who earns 30,000 kr/year sees a much great benefit (e.g. happiness, less stress, healthier food, etc.) from a gift of 100 kr. than a person who earns 300,000+ kr/year. Of course wealthy people and their political parties want to get rid of it! By doing so they would be pushing the burden of taxation, which every country has, more on poorer people and less on the wealthy. It’s really that simple. By the way, last time I checked, in California, USA, a wealthy person’s income tax bill, when social security, medicare, federal, state and local income tax rates are added together can reach 50% for income above a specified threshold apparently just like in Denmark. There are many mechanisms a very high income person in the US can use to reduce that tax burden. As Warren Buffett famously comments, he pays less in tax than his secretary. He wants a more progressive system so wealthy people actually pay a higher percentage. With that info in mind, Denmark’s Topskat rate does not necessarily seem so high. In most places it is a tiered system and, of course, the issue is where you set the threshold for each tier. I hope that is helpful.