Denmark is long viewed across Europe as an example of how to keep an economy thriving and a society equal.
Denmark is the home of "flexicurity," the catchy name given to a system that pays ample unemployment and welfare benefits but, unusually in Europe, imposes almost no restrictions on hiring and firing by employers. The mixture has served Denmark well, and its economy barreled ahead in 2006 by 3.5 percent, one of the best performances in western Europe. The country is effectively at full employment.
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But success has given rise to an anxious search for talent among Danish companies. The Organization for Economic Cooperation and Development, which is based in Paris, projects that Denmark's growth rate will fall to an annual rate of slightly more than 1 percent for the five years beginning in 2009, reflecting a dwindling supply of a vital input for any economy: labor.
The problem, employers and economists believe, has a lot to do with the 63 percent marginal tax rate paid by top earners in Denmark - a level that hits anyone making more than 360,000 Danish kroner, or about $70,000. That same tax rate underpins such effective income redistribution that Denmark is the most nearly equal society in the world, in that wealth is more evenly spread than anywhere else.
The movement toward lower taxes passed Denmark by, even as it took root in much of Europe.
Small East European countries, notably Estonia and Slovakia, started the trend by imposing low, flax taxes on income and corporate profits about five years ago. Those moves helped prod Austria, and eventually, Germany, to slash high marginal rates as well.
Danish taxes also contrast sharply with those in nearby London, often jokingly referred to among Danes as a Danish town, because so many of them live there. Lower taxes on high earners have been a centerpiece of the policy mix that has fed the rise of London as a global financial center since the 1980s.
But today young Danes can easily choose not to pay for the system's upkeep, once they have siphoned off what they need. For starters, as citizens of the European Union they are entitled to work in any of the 27 EU countries.
........................Acknowledging the need to reduce the tax burden, Rasmussen's previous government approved slight reductions in taxes for lower earners, but he has avoided promises of quick fixes. In 1998, Rasmussen's party narrowly lost a national election focusing on a message of business-friendly reform, an experience that colors the current message of incremental change.
"Denmark is a country of consensus," Rasmussen said recently. "Occasionally that fact tends to lower the speed of reforms, but in exchange we are efficient in our implementation."
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