Danish Think Tank Argues Stock Tax Reduction More Economically Beneficial Than Labor Tax Cut

A new analysis by the liberal think tank CEPOS suggests that lowering the stock tax in Denmark would be more beneficial for the economy than cutting taxes on labor. This conclusion is based on the distorting effects of the high stock tax, which CEPOS argues inhibits productivity growth and entrepreneurship.

CEPOS highlights that high stock taxes can discourage investment in stocks, hindering companies’ ability to access capital for investments and efficiency improvements. This, in turn, negatively impacts economic growth. Furthermore, the think tank emphasizes that high stock taxes can stifle entrepreneurship, as new businesses rely on capital for growth and survival.

The current tax system in Denmark taxes stocks at 27 percent or 42 percent, depending on the dividend or gain amount. However, CEPOS’ calculations reveal that when inflation is factored in, the real tax rate on stocks can reach as high as 54 percent or 84 percent.

While CEPOS continues to advocate for lower taxes on labor, the think tank urges politicians to prioritize taxes that most significantly hamper the economy. Otto Brøns-Petersen, head of analysis at CEPOS, argues that the problems with capital and stock income taxation have been politically neglected despite their substantial impact.

The Economic Councils previously pointed out the complexities of stock and bond taxation in 2019, recommending a more uniform approach. They also concluded that stock taxation is high compared to labor taxation. However, no changes have been implemented since that report.

The Confederation of Danish Industry (DI) and the Danish Chamber of Commerce (Dansk Erhverv) support CEPOS’ assessment of the negative impact of stock and bond taxes. While both organizations advocate for addressing the issue, they are hesitant to prioritize stock tax cuts over further easing of labor taxes.

On the other hand, Sune Caspersen, chief analyst at the Labor Movement’s Economic Council, disagrees with lowering the stock tax. He argues that the tax helps to curb increasing inequality resulting from rising fortunes.