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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Why the Danes Love High Taxes



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Matt Yglesias has been blogging from northern Europe, and he’s written a post that captures the differences between the social democratic left and the free market right unusually well. After describing Denmark’s high-quality public services and extremely heavy tax burden, he writes the following:

There’s no way to have a progressive renaissance in the United States unless progressives find some politically feasible way of directly making the case that higher taxes for better services can be a good trade. And it’s worth trying to be honest about this. The other American journalists I’m traveling with, all lefty environmentalist types, can’t stop complaining about how expensive basic consumer goods are here. And it’s true, stuff’s expensive! But college and preschool and doctors and hospitals are all free, and the carbon emissions are low. This is, I think, a good trade but it really is a trade. Low taxes plus cheap dirty energy and large numbers of poor people will give you cheaper restaurants.

My sense is that Matt is overestimating the average material standard of living in Denmark. Moreover, the differences in poverty between northern Europe and the United States can be traced in no small part to family structure. It is true, however, that tax-and-transfer policies make an enormous difference. Via Will Wilkinson, this chart shows that pre-tax inequality in Denmark is not that far from pre-tax inequality in the United States — but the Danes do far more to redistribute wealth. One has to assume that regional diversity of the United States contributes to our decision to redistribute less, e.g., the cost of living varies dramatically from New York city to Houston to Marfa, whereas the band is far narrower in Denmark.

I’d say that my main objection to what you might call the Danish settlement is that the sacrifices made in terms of disposable income are also sacrifices in terms of choice: the Danes live in what Keith Joseph, one of the architects of the Thatcher Revolution, called a “pocket-money society,” in which the state makes the big decisions — about housing and education and health — while individuals were left with “pocket-money” from their wages. And as citizens cede control over these larger life decisions, there is the twin danger of dependence and a stultifying lack of innovation.

It helps, however, that center-right governments in Denmark and Sweden have helped revive the Scandinavian social model by introducing market competition into education and other public services, as well as notional accounts in public pensions and a variety of other ideas that many U.S. Democrats would consider dangerously right-wing.



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