# Apples to Æbler: the math.

English

What if the price for universal health care, tuition-free higher education, and elderly care was called “social benefit payments” instead of “taxes”, would there still be such strong opposition to it? If you simply compare the costs with the benefits, are they worth paying for? The following is a comparison of two hypothetical families in the United States and Denmark. I’ve used common sense and simple arithmetic with easily verifiable costs in order to demonstrate how a country with such high taxes can also have such a high quality of life. I’ve tried to be as accurate as possible. In some situations, I’ve had to use an estimate or an ‘average cost’ and I’ve included a list of resources below where you can see how I reached the numbers.

##### The Nielsens and the Smiths.

The families both consist of two married adults with similar jobs and two children aged 1 and 14. The Smith family lives in the United States. The Nielsen family lives in Denmark. All values are expressed in USD and are converted from DKK with the average exchange rate of 6.6708, sometimes rounded to 6.7 for simplicity.

It’s 2019.

The Smith family’s gross income is 75,000 a year. Using the standard deduction of 24,400, their taxable income is 50,600 which puts them in the 12% bracket for federal taxes and they pay 6,072. US states have varying tax rates, I use 4% for this example which costs the Smiths an additional 2,024. I assume 0% municipal tax. For their two children, they receive a 2,800 tax credit. Their tax payments total 8,096 or 16%. I add the tax credit back in and the Smiths’ net income after taxes is 69,704.

The Nielsen family lives in Denmark and they earn the same gross income as the Smiths. They pay a labor market contribution tax that is a flat 8% of their gross salary which comes to 6,000. After this tax is deducted, the first 13,851 they earn is excluded from income tax calculations so income tax is calculated from 55,149. This puts the Nielsens in the bottom national tax bracket of 12.16% so they pay 6,706 to the national government. Using an average tax bracket of 23% for municipal tax (assuming no interest, commuter or union deductions), the Nielsens pay another 12,684. The Nielsens can choose not to pay the church tax so their total tax liability is 25,390 for a total percentage of 46%. No one in Denmark pays more than 52% of their income, including the very rich. For their two children, they receive a deposit back into their bank account quarterly for a total of 4,435 annually (think of it as a child tax credit, but the amount varies according to the age of the child, more for young children). I add the child benefit back and the Nielsens’ net income is 54,045. At first glance, it looks like those high taxes are outrageous. The Nielsens are taking home 15,659 less than the Smiths at this point, but I must calculate tax benefits to make a fair comparison.

Health and Dental Care
The Nielsens’ health care is a benefit paid by the national health care system. Dental care for their children, up to age 18, is also included. The Smiths do not receive national health care so I’ve got to subtract their annual premiums for a family of four (7,200) and hope that they don’t need any actual services this year which would require them to use up their deductible. The Smiths’ kids don’t get free dental care either so they’ll have to pay for three regular visits and braces this year for a total of 5,800. The Smiths are down to 56,704 for the year assuming no visits to the doctor or any other health-related services. The Nielsens net income is still 54,045 so the Smiths are still earning more at this point, but the difference is only 2,659 after only factoring minimal health and dental costs.

Higher Education
The Nielsens don’t have to save money for their kids’ higher education because all institutions have free tuition in Denmark. Their children will actually be paid a grant by the government called SU for a total of 11,232 per year for up to 6 years while they study if they are not living at home. In order to make this comparison fair, the Smiths would have to pay into a 529 plan in order to make sure their kids have the same opportunity to receive higher education debt-free. It gets more challenging to calculate at this point, but a general rule is that the Smiths would need to put in 2,000 per year per child into the plan to achieve only half the cost of American university education, hoping that the other half can be covered by financial aid and loans. I’ll be generous and calculate what’s required for the Smiths to cover 75% of the total cost of the education and assume their kids get scholarships for the other 25%. This year, the Smiths must put 6,000 into the 529 plan. It’s a pre-tax contribution so their tax burden is reduced by 960 so I’ll add that back into their income and the total comes to 51,664. I haven’t added the SU income that the Nielsens’ children will receive so their income remains the same at 54,045. The difference between their incomes is now 2,381 and has shifted in favor of the Danes.

At this point, I might have you convinced that even though Denmark has much higher taxes, citizens receive a greater benefit in return. If you’re still in doubt, though, read on.

Child Care
It is expensive in any country. Both the Smiths and the Nielsens can choose to send their child to a daycare center or to private home care. Using an average cost for a child in a daycare center in the US, the Smith family pays 10,400 annually for full-time care. There is a child care tax deduction, which requires filling out Form 2441 of the IRS tax return. I took a look at a filled 2441 with similar financial information for the sake of this comparison and the result was 2 dollars. That’s not a typo. A deduction only changes the taxable income by 2 dollars. It costs more in time to fill out the form than the deduction is worth. So for the sake of this comparison, I’m ignoring the deduction. It doesn’t impact the financials in a significant way for a family at this income level and, if you remember from earlier, we also ignored deductions that the Nielsens could have taken to reduce their tax burden. In Denmark, the cost of child care is shared by the government. Citizens pay a portion based on their income level. The Nielsens earn too much for a reduction in their portion so their cost for full-time child care for their one-year-old is 4,572 per year. This brings the Nielsens net income to 49,473 for a difference of 8,209 compared to the Smiths 41,264.

Minor Surgery
We all know, though, that shit happens. What if a member of the family needs to have a minor surgery? The average cost for a medical stay in the US is 15,734. Thankfully, the Smiths have health insurance so they only have to pay an additional 12,000 to meet their deductible for the year and the insurance company will cover that extra 3,734. Even if something happens to someone else in the family this year, the out of pocket maximum will protect them from paying any more than that…this year. I’m also assuming that the Smiths can even afford to pay for the medical bills without incurring debt which would cost them even more in the long run. The Nielsens have national health care and pay a small amount, roughly 50, for reasonably priced prescriptions relating to the surgery. Their income is reduced slightly to 49,423, a difference of 20,209 in favor of the people living in one of the happiest countries in the world. The Smiths’ income has been reduced to 29,264.

Social Payment Benefits
Looking at it another way… if I add only the extra expenses the Smiths paid for health insurance premiums and dental care (13,000) to what they had already paid in taxes (8,096), the new percentage of benefit payments is 41.7%. Compare that figure to the Nielsens 46% in social benefit payments. I’m adding the term social here when referring to the Nielsens’ benefit payments because they affect society as a whole rather than their family alone. If I continue to add the benefit payments for higher education that the Smiths paid out, then their percentage becomes 51.7% while the Nielsens’ social benefit payments remain the same at 46%. Adding in child care costs results in 72.2% of benefit payments for the Smiths and 46% of social benefit payments for the Nielsens. Adding in an emergency surgery results in 96% benefit payments for the Smiths and 46% social benefit payments for the Nielsens. Now, re-read this paragraph and mentally substitute the term taxes instead of benefit payments. Let that sink in.

Vacation Time
Every worker in Denmark is entitled to 5 working weeks, or 25 days, of vacation by law and sick time is paid by the employer or the municipality. The Nielsens have 12.5% of their income withheld each month, but it is then paid back to them from the government when they take their holiday time off. There are certain circumstances where workers may request their unused holiday time as payment. In the United States, there is no legal requirement for paid sick or holiday leave. 85% of private industry employees in the US earn ten paid leave days after one year of employment. The Smiths’ income comes from a company with mid-range benefits and they receive 10 days of paid leave a year, but sick time is deducted from this total paid leave. I’ll assume for this comparison that the two families both used 10 days of sick time. (It’s not a crazy assumption, it’s what happened in my family for years). This means that for the Smiths, there was no paid leave leftover for vacation. In order to make the comparison fair, I have to give the Smiths five weeks of vacation time as well, but subtract the income they would have earned during the 5 weeks that the Nielsens are on vacation. The Nielsens income remained the same at 49,423 but the Smiths earned 8,203 less. Their total income is reduced to 21,061, a difference between the families of 28,362. Or, if we calculate the lost income in terms of benefit payments, the Smiths paid 112% in benefit payments to receive the same benefits as the Nielsens, who paid 66% less.

Maternity / Paternity Leave
In our example, the families already have two children so they didn’t use maternity or paternity leave in 2019. If they had, the mother in the Nielsen family would be eligible for 4 weeks of late pregnancy and 14 weeks of maternity leave for herself alone. The father receives his own 2 weeks of paternity leave and the remaining 32 weeks that add up to a total of 52 weeks can be shared between the parents in whatever way they choose. The mother in our example earns enough to qualify for the maximum maternity benefit of 650 per week for a total annual salary of 33,800 during the year she has a baby. The income for the parents in the US if they take 52 weeks of parental leave? Zero. Two children? 67,600 more for the Danish family. All for the low, low price of 46% in social benefit payments.

Home Care
Home care, for example, doesn’t really fit into a mathematical comparison about an average family with children. But what if these families had a parent that required significant care due to an illness or disability? This care is covered by the national health care system in Denmark. A small army of health care staff, employed by the municipalities, are tasked with seeing to the daily needs of these citizens. Services include daily help getting out of bed, personal hygiene care, help to get dressed, help with meal preparation and/or eating. Help with other tasks such as laundry, shopping, and cleaning. In the United States, these services might become the responsibility of the Smiths or they may incur a significant cost for private care. For the Nielsens? 46% in social benefit payments.