Why I Love Paying More Than 50% Income Tax In Denmark?

I pay more than 50% of my income in taxes – and I love it.

I live in Denmark, a little country in Northern Europe with borders to Germany and Sweden.

I live in a welfare state. This means that we pay high taxes (most people abroad think it is outrageously high taxes!), but we also get quite a lot of benefits from the state. In fact, we have one of the largest public sectors in the world (relative to GDP).

Denmark has one of the highest equality rates in the world. Even though we are far from perfect, we are perhaps one of the best examples of a modern Robin Hood country. We have a progressive tax system, which means that the more you earn, the higher percentage of your income you pay in taxes. Money is being distributed from the richer to the poorer.

Tax in Denmark is paid automatically before you receive your monthly salary in your bank account. This has a psychological effect, as you never really see the money.

We happily pay our taxes every month even though more than half of our hard-earned money is taken from us (at least I know many that do).

One reason is that we know the money is put to good use. We have the lowest corruption rate in the world, so we are always quite certain that our money is being spent on welfare rather than ending up in the pockets of greedy politicians.

Another reason is all the benefits we enjoy:

Opportunities in the welfare state

Living in Denmark and being part of the welfare state gives you many opportunities. Education is for me one of the most important ones.

I grew up with a single mom in a small apartment in a suburb of Copenhagen. My mom didn’t have any savings and some debt. We always had food on the table and I enjoyed a great childhood, but how would my chances for getting a college degree have been in a country like the US?

Sure, in the US, I would have the right to the pursuit of happiness (and some people might succeed), but in Denmark I had the right to happiness.

I got a free education in Denmark all the way from primary school at the age of five to finishing my Master’s degree at the age of 25. I could choose any university in Denmark (or I could choose one abroad and get a stipend from the Danish state). I studied at renowned universities in the US and in the UK during my studies.

I spent exactly $0 on my Master’s education. When I graduated college, I had a student debt of exactly $0. Oh, and since I turned 18, I got $1,000 from the state every month to support me during my studies.

Because of the welfare state, I know several people who had troubled childhoods who later went on to become elite students at their universities – simply because the welfare state took care of them.

The welfare state gives everyone the same opportunities – no matter your or your parents’ backgrounds or wallet size.

In other countries, you would most likely take on debt to finance education and you would finish your education deep in debt. This system might work fine for some people, but what if I want to switch careers or if I fall sick and cannot work anymore? Who will pay my debt then?

Security in the welfare state

In Denmark, we enjoy a high degree of security. Not only in the case of low crime rates (did I mention we have one of the lowest crime rates per capita in the world?), but also when life hits you hard.

Imagine all the things that could seriously de-rail your life. I will argue that the welfare state has a solution for most of them.

If you get seriously sick? Don’t worry. All your health care is paid for no matter how sick you are, and you will receive money to live for from the state in case you run out of money. You don’t need an insurance to survive or to be eligible for this, but some people have an extra insurance giving them even more money if they get sick.

If you get fired from your job? Don’t worry. The state will help you with training and finding a new job. If you run out of money, the state will make sure to give you and your family enough money to have shelter and food on the table.

If you get an unexpected kid? Well, you should of course have some worries when you bring kids into this world, but the state will give you some money for each kid you have.

If you want to pursue early retirement and financial independence as I do? Fine, go ahead! And if you end up losing all your money on the stock market? The welfare state will be there for you again.

The point is that many people in Denmark enjoy a high level of security due to paying high taxes. It is like an insurance that covers most of the incidents that can normally ruin your life elsewhere in the world.

Flexibility in the welfare state

In Denmark, we enjoy a high degree of flexibility.

We can choose to live life at the pace that we want. You do not need to rush through the educational system (even though the state obviously would like you to). Many Danes take gap years, an extra year of school or something similar. This means that we usually graduate long after American students.

Since we do not have to take on debt to study (and get paid to study), most Danes are able to move out and live in their own apartments just before or after turning 20. Young Danes are usually quite independent and take control of their own lives at a young age.

Many Danes frequently change jobs (25% in the private sector change job every year). This is because we know that if things do not work out at the new job, we will at least be helped by the state financially in between jobs. High taxes and the welfare state makes us more flexible, and we might be more likely to take chances instead of being risk averse.

Since Danes enjoy a high standard of living and high purchasing power, almost anywhere we go in the world, the cost of living will be relatively cheap for us (except Norway and Switzerland – you wouldn’t believe what things cost there!). This gives us an enormous flexibility to travel and live abroad.

Paying high taxes gives us a welfare state that in turn gives us a large flexibility in how we want to live our lives.

“Sammenhængskraft” in the welfare state

“Sammenhængskraft” is a Danish word that I do not know how to translate. The dictionary defines it as “the act or state of sticking together tightly”.

“Sammenhængskraft” is often mentioned as one of our biggest competitive advantages. It is the feeling of belonging to society.

The argument for “sammenhængskraft” is that in countries with little distance between people socially/economically and culturally, the individuals participate in social relations that fosters compassion and humanity. People feel mutually bound to each other in a welfare state.

In Denmark, paying high taxes, having a welfare state, being relatively socially equal and culturally close, make people feel more included in society and thus engaging more with society.

An example is voter turnout. In the US, 55% of people vote. In Denmark, roughly ~85% of people vote. I am not going to go into the reasons behind this (and there might be many), but an argument is that the welfare state makes people see the benefits of paying taxes, thus wanting to participate in shaping society.

Another example is the low crime rate. The argument for “sammenhængskraft” is that if people feel more included in society and are being treated well, they will not want to or need to participate in criminal activities.

… and “sammenhængskraft” has been found to positively impact many other things (e.g. health, economic growth and integration – source is in Danish, sorry).

Something is rotten in the (welfare) state of Denmark… Right?

Ok, ok. Enough with all the positive adjectives and perceived advantages of the welfare state. There are some bad things in Denmark.

The weather in Denmark sucks. This “summer”, we have had the worst weather in decades with mostly rain and quite few sun hours. We usually only have a couple of good summer months per year with 20 to 30 degrees Celsius (68-86 Fahrenheit), but for most of the year the temperature is between -10 to 20 degrees Celsius (14-68 Fahrenheit). The winter months are particularly long with the sun rising at 8.30am and setting at 3.30pm – it is dark when we go to work and dark when we go home. No wonder “winter depression” is a topic that we always discuss in those months!

Unfortunately, global warming is not going our way either. It is predicted that Denmark will get colder and more wet weather in the future.

Why doesn’t everyone just rush to Denmark and reap the benefits of the welfare state? Denmark is a quite closed country, and it is quite hard to obtain a citizenship and residence permit. In recent years, Denmark has had an increase in support for right-wing parties (just as many other European countries) and is increasingly becoming nationalistic. If you read my blog, or this interview with me, you’ll know that I am very much against this.

The welfare state is not only a smooth machine handing out money to everyone. There are significant inefficiencies in our public sector and money is being wasted on stupid ideas, weird regulation and slow bureaucracy. However, the benefits of the welfare state are simply too many for this to be a problem that threatens its legitimacy.

… and of course, a negative aspect of the welfare state is the high taxes. As you know from above, I happily pay my taxes. I would have been nowhere without them.

However, taxes might lead some individuals to leave the country and work in countries with lower taxes after getting a free education (a net negative deal for Denmark). Also, some businesses might be scared away and choose other locations.

These are mostly theoretical problems and are not big issues currently. Mostly because many Danes choose to stay and work in Denmark, and choose to establish families in Denmark (so their kids can enjoy the benefits of the welfare state). Also, many businesses still find Denmark attractive (for example because of large talent pool of well-educated, independent employees).

That’s why I am happily paying more than 50% in taxes every month, and I hope to do it all the way towards early retirement.

I’m not saying that the welfare state is the only way to go, but it is a damn good way in my opinion.