The Renewed Sunset Hill House Hotel
Bob Jensen at Trinity University
Could it be that tax revisionists in Denmark
are beginning to anticipate
value added from something like an American Dream being introduced in Denmark?
Does the American Dream add more good than harm?
The current Sunset Hill House Hotel just down the road from
our cottage in the White Mountains of New Hampshire
The closest mountain range is the Kinsman Range about 10 miles east of our cottage
American Dream ---
Often the goal of an American Dream is not so much betterment of your own life but betterment of the lives of your children and grandchildren.
The Hendersons featured in this article have two of their own girls plus a girl and boy that they adopted in China.
A Message from Jim Peters on the AECM
A couple of years ago, 60 minutes interview a bunch of Danish citizens because the Danes had once again topped the international surveys as the happiest people on earth. Americans, as with most international measures, were somewhere in the middle of the pack. The Dane's advice to Americans was to dump the American Dream because it caused more harm than good. The core of the American Dream seems to be equating wealth to happiness and setting off on a constant quest for more wealth. The Danes advice was to focus more on non-economic sources of happiness and learn to appreciate what you have.
Obviously, all this is an anathema to Americans and some of the reaction to the Dane's comments included epithets like "losers" and "hippies." But, the fact is that they are happier than Americans.
A Reply from Bob Jensen
Oddly, much of what you say about Denmark applies even more so to the higher welfare state of Norway which has much more state-owned oil revenues as an OPEC power player and a much higher ranking education and health care than Denmark.
It seems to me that the variables you praise that supposedly lead to happiness do not ipso facto do so in other welfare nations like Norway. My guess is that the concept of "happiness" is just too complicated to be meaningfully ranked. The poor Australians don't even get ranked --- must be miserable Down Under.
Norway only comes in at Rank 19 on happiness. The United States comes in at Rank 23 ---
1st - Denmark
2nd - Switzerland
3rd - Austria
4th - Iceland
5th - The Bahamas
6th - Finland
7th - Sweden
8th - Bhutan
9th- Brunei Darussalam
10th - Canada
11th - Ireland
12th - Luxembourg
13th - Costa Rica
14th - Malta
15th - The Netherlands
16th - Antigua and Barduba
17th - Malaysia
18th - New Zealand
19th - Norway
20th - the Seychelles
23rd - USA
35th - Germany
41st - UK
62nd - France
82nd - China
90th - Japan
125th - India
167th - Russia
177th - Zimbabwe
178th - Burundi
I take issue with Jim's quoted phrase that the American Dream in America "caused more harm than good." In my opinion, most of what we have that is good in America was built in one way or another on somebody's American Dream, a somebody willing to take financial and even physical risks, work tirelessly to build or rebuild something (possibly making creative innovations along the way), and pass the fruits of entrepreneurial labor on so that other Americans can find jobs and other Americans can enjoy the goods and services provided by the American Dreams of others.
An Illustration of the American Dream
In this essay, I will provide one case illustration regarding what is now the Sunset Hill House Hotel in Sugar Hill, New Hampshire. The present-day Sunset Hill House Hotel is a restoration of a former resort's old Annex --- http://www.sunsethillhouse.com/
Also see http://www.trinity.edu/rjensen/tidbits/2008/tidbits080824.htm
Lon and Nancy Henderson were two U.S. Army Officers who met for the first
time in Somalia and were later married. After retiring from the U.S. Army they
pooled their savings and borrowed millions of dollars to save a dilapidated
building called The Annex that was one of many buildings standing after the
historic Sunset Hill House Resort was torn down in 1973 ---
In the supposedly happiest nation on earth where education, health care, and many other goods and services are free due to equalization of income and wealth based on tax laws (that confiscate 77% of high incomes), I was wondering if any Danish couple would've borrowed millions of dollars to save a dilapidated building and commenced to each work tirelessly for 70 or more hours per week to run a hotel seven days a week for 52 weeks each year.
Would a Lon and Nancy Henderson in Denmark cheerfully awake at 4:00 a.m. every morning of every week to cook a full breakfast for each of the hotel guests intending to hike or ski or golf in the White Mountains?
Would a Lon and Nancy Henderson in Denmark spend the better part of every winter season day and evening, including week end days and evenings, painting and wall papering rooms of the hotel.
Would Lon Henderson in Denmark crawl on his belly at considerable physical risk crawl on his belly day-after-day to jack up the sagging floor of the golf club house?
Would Lon Henderson, with the help of his greens keeper Sam Kerr, daily mow over 70 acres of grass on the golf course and hotel grounds?
Would Lon Henderson maintain 40 motorized golf carts in mint condition for golfers?
Would Lon and Nancy Henderson in Denmark willingly go deeper into debt after two major fires in this hotel, each of which caused over $100,000 in damage?
Without an American Dream would Lon and Nancy Henderson be happy working and sacrificing like this for perhaps 30 more years of their lives?
This is our Subaru parked in front of the main hotel
There's another three-story building called The Hill House that houses guests as well
This is the golf club house that Lon crawled under for several
weeks in a row
This is the view to the west toward the Green Mountains of Vermont
Marginal Tax Cuts in Denmark --- http://www.asb.dk/en/aboutus/newsfromasb/newsarchive/article/artikel/feature_article_what_can_we_expect_from_the_spring_tax_reform-1/
The media regularly feature stories about how Danes are unwilling to work extra hours, even if taxes are lowered. The Danish Economic Council and the Danish Ministry of Finance say the opposite is true, while the public debate swings in both directions.
By Associate Professor Anders Frederiksen, Department of Marketing and Statistics, Aarhus School of Business, University of Aarhus
(This article was published in the Danish daily Berlingske Tidende on Monday 16 November 2009.)
This spring will see the implementation of a comprehensive tax reform that will reduce the marginal tax rate for most people in Denmark. We are becoming quite well versed in concepts such as financial 'carrots' and 'hammocks', and we have been inundated with all manner of studies of the willingness of the Danish people to work more if taxes are cut. Most of these studies find that the Danes are willing to work more, but there are always some that present the opposite conclusion; and the media has a tendency to call more attention to the latter. Perhaps it makes for a better story when people contradict the Economic Council and the Ministry of Finance.
Let's nail the point home once and for all: the supply of labour in society will increase if the marginal tax rate (the tax on the last krone earned) is cut. This outcome is so certain that not a single economist contradicts it. But that is where the consensus ends, and opinions on the scope of this effect differ greatly, because the change in the supply of labour that will follow a cut in the marginal tax rate is generally considered relatively small – a conclusion that has also been confirmed by Danish research. This means that if the marginal tax rate is lowered by, e.g. 1 per cent, a good estimate is that the supply of labour will increase by 0.05 per cent for men and 0.15 per cent for women. In other words, after a marginal tax rate cut of 10 per cent, an average woman working full time will be willing to work approx. 30 minutes more a week.
But exactly who can we expect to work longer hours? The spring tax reform will abolish the middle-bracket tax, shift the tax basis for the top-bracket tax and reduce the bottom-bracket tax rate. This will increase the incentive for nearly every worker in Denmark to work more, although the consequences for the supply of labour depend on the level of income. Workers with a bottom-bracket tax as their marginal tax will experience a moderate reduction in taxes, and thus we can only expect a moderate increase in the supply of labour within this group. In contrast, people who are no longer charged top-bracket tax and who also experience the reduction in the bottom-bracket tax as well as the abolishment of the middle-bracket tax will have a significantly reduced marginal tax rate, and this will have a major impact on their willingness to work more. Thus, one of the consequences of the tax reform is an increase in the supply of labour among those workers earning around DKK 400,000.
But what do the Danish people say when asked whether they would work more if taxes were cut? To obtain a better understanding of this key question, we asked the members of the unemployment insurance fund FTF-A what they would be willing to do if the top-bracket tax were abolished? Their response was clear – they would work more. More precisely, 17 per cent responded that they would work more, while 77 per cent responded that they would not change their working hours and only 6 percent believed that they would reduce their working hours. Thus, these responses confirm the findings found in the specialist literature.
Overtime or another job?
The spring tax reform will increase the supply of labour, but how is that possible when everyone works 37-hour-a-week jobs? The idea of inflexible working hours is actually a misconception. According to our study, the majority of the unemployment insurance fund members who responded that they would work more would do more overtime, while nearly a third would increase the supply of labour by taking an additional job. A small share would exchange their part-time job for a full-time job. And those who are not in employment would spend more time looking for work. In other words, you and I may not see any possibilities for earning extra money, but there is a large group of people who would see these possibilities and would be willing to make an extra effort if the incentive were greater.
Less attractive to moonlight
One thing is the supply of labour, but what other consequences will the tax reform have? Unintended consequences of taxation, such as the existence of a black labour market, will also be affected by the reform. The specialist literature documents that the supply of labour in the informal labour market (especially for men) will be significantly affected by the pay that can be brought home from the regular labour market. We also know from previous studies that a large share of the population moonlights – a finding that is also confirmed by FTF-A's members, where approximately 10 per cent say they moonlight. If the top-bracket tax were abolished, 18 per cent of those who moonlight would reduce the amount of work they do on the black labour market, while only 1 per cent would go against that trend and moonlight more. In short, lower taxes also contribute to a more honest labour market.
Pamper pension savings
The tax reform will also have interesting consequences for the financial sector, the retail sector and other areas of society with an interest in the economic priorities of Danes who have more money in their pockets. We know that the retail sector will experience a boost resulting from the increase in disposable income, but not all the money will go towards extra consumption. Some of it will also be put into savings, but what kind? The high marginal tax rate in Denmark has turned increasing pension payments into something of a national pastime in an effort to avoid and postpone paying taxes. If the top-bracket tax were abolished, this hobby would become less interesting, even though the higher disposable income would make it possible to increase savings. The responses from FTF-A's members show that 20 per cent of people with pension savings would increase their payments if the top-bracket tax were abolished, while only 8 per cent would decrease payments to their pension savings. This illustrates that the tax reform will not only have consequences for the labour market, but for many other sectors as well. For instance, people will spend more money in shops, and the financial sector can expect to experience an increase in demand for pension-related products.
Expensive in the beginning
Naturally, the many positive effects of the tax reform described here do not stand alone, and the observant reader is probably wondering whether there are any negative consequences of the tax reform. One problem is that the reform will not be self-financing in the short term. Consequently, the state will have less money in its coffers as a result of lower taxes next year, even taking into account the fact that a number of people will work more. However, this does not mean that the tax reform cannot be self-financing in the medium or long term. The changed behaviour patterns that we will see in the Danish people as a result of the lower tax on work will contribute to this. For example, higher pay after taxes will encourage young people to exploit their potential better, e.g. by obtaining a higher education, which will contribute in the long term to better pay conditions and growth in the economy.
How skewed can Denmark be?
One of the more negative consequences of the tax reform stems from the fact that the tax cut primarily affects the upper levels of the income distribution, leading to greater inequality in society. While the question of how much inequality can be tolerated is a political issue, it is naturally an important aspect that should be considered. But with that said, Danish society generally has a very high level of equality compared to other countries.
Could it be that tax revisionists in Denmark are beginning to anticipate value added from something like an American Dream being introduced in Denmark?
Marginal Tax Rate Declines in the Rest of the World ---
Could it be that the rest of the world finds value added something like America's Dream?