Thursday, March 26, 2009

Danish Vs. American Tax System

In the United States, we have a tax system which I feel is distorted. We use the income tax as a way to tax every citizen at a flat rate, which depending on the amount they make, can be alot of taxation or lower taxation. The problem, is that the majority of america is not making that much money. So the taxes that an average american pays is a much higher percentage of their annual income in contrast to the upper class. This taxation on a mostly lower class, generates less tax money than heavy taxes on the rich and super- rich. The upper class tend to evade much of their taxation, and cause most of the taxes to come from the lower and middle classes who cannot afford the rate.

I think that the way the Danish have a better tax system than we do, and seems to infact fit more with our society than it does with the social layout in Denmark. What i mean by this, is that in America we have a much higher percentage of the population living in poverty than they do in Denmark. Yet we have a taxation system which seems to favor the rich and punish those at the bottom of the economic ladder by taking what little they have. The Danish have less homeless people, and lower poverty rates. The low poverty rates are helped in part by a system that is geared to meet the financial needs of the different economic groups. For example, the tax brackets that we only have for social "grouping" purpouses (lower, middle, and upper class), in denmark are tax groups where they have different tax rates. The people who came to visit were private school kids, who in Denmark would fit into the top, or upper class of the tax & social brackets. This bracket is subject to about 65% income tax, while the middle and lower tax brackets are significantly lower at 20- 35% taxation.

If I were to chose between America sticking with its current tax system, and adopting the Danish system, I would chose the Danish system over our current one. I feel that a tax system where less than 10% of the people making around 90% of the wealth pay 20% of the taxes, is completely out of sync with the American social system. The Danish system fits with our society because it taxes the highest earning citizens at the highest percentage of what they make, and not everyone equally. I think that the problem at its rout, is that we have an equal tax system, but people do not make equal wages so it isn't very logical.
One thing that can be said for our system is that it is effective. We have been able to support two wars, a bailout of the two largest industries in America all on tax dollars, but the problem is about who is being taxed, not how much we are getting out of it. If we put 65% taxes on the upper class, the amount of tax revenue we would see in America would be immense and take alot of stress off of the middle and lower classes as they could now enjoy lower taxes and higher income (which would eventually be spent and generate sales tax money).

1 comment:

Juggleandhope said...

Jakob -

Please clarify the distinction between the progressive income tax (based on marginal income) in the U.S. and the flat/regressive payroll taxes (SS & Medicare) and flat/regressive sales tax.

You could research the exact brackets and percents in the U.S. versus Denmark to confirm that, even just considering both "progressive" systems, the US system is far more likely to result in massive inequality.