The World’s First Ambassador to the Tech Industry

[dealmaker]

The World’s First Ambassador to the Tech Industry
Denmark appointed him to approach Silicon Valley as if it were a global superpower. His challenges show how smaller countries struggle to influence giant corporations.

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Casper Klynge, Denmark’s ambassador to the tech industry, in Copenhagen. “These companies have moved from being companies with commercial interests to actually becoming de facto foreign policy actors,” he said.CreditCreditLaerke Posselt for The New York Times
ByAdam Satariano

• Sept. 3, 2019

Leer en español
COPENHAGEN — Casper Klynge, a career diplomat from Denmark, has worked in some of the world’s most turbulent places. He once spent 18 months embroiled in reconstruction efforts in Afghanistan. For two years, he led a crisis management mission in Kosovo.

Yet Mr. Klynge, 46, says his toughest foreign posting may be the one he has now: as the world’s first foreign ambassador to the technology industry.

In 2017,Denmarkbecame the first nation to formally create a diplomatic post to represent its interests before companies such as Facebook and Google. After Denmark determined that tech behemoths now have as much power as many governments — if not more — Mr. Klynge was sent to Silicon Valley.

“What has the biggest impact on daily society? A country in southern Europe, or in Southeast Asia, or Latin America, or would it be the big technology platforms?” Mr. Klynge said in an interviewlast monthat a cafe in central Copenhagen during an annual meeting of Denmark’s diplomatic corps. “Our values, our institutions, democracy, human rights, in my view, are being challenged right now because of the emergence of new technologies.”

Denmark is emblematic of the many small countries that are grappling with technology’seffects on their societiesand are frustrated by an inability to meet with, let alone influence, the companies causing that disruption.

Danish officials have been particularly concerned by how technological change is causing challenges that have afflicted other Western democracies: the spread of false and politically divisive content on social media, questions about privacy and data-hungry services, cybersecurity and the low taxes the companies pay outside the United States.

https://www.nytimes.com/2019/09/03/technology/denmark-tech-ambassador.html

 

[Maverick2608]

In Denmark the combined marginal tax rate (income tax + VAT + excise taxes) = 67%.

This is an example of how that money is wasted.

 

[Sig]

In Denmark the combined marginal tax rate (income tax + VAT + excise taxes) = 67%.

This is an example of how that money is wasted.

So first off excise taxes and VAT are charged on consumption, income tax is charged on earnings, so combining them for a "combined marginal rate" is nonsensical. Even more so when considering that excise tax is only charged on a small minority of items like alcohol, so while consumption taxes aren't added when calculating a "combined marginal tax rate" in any case it makes even less sense to do so when it comes to a tax that doesn't even apply to most purchases.

That said, Denmark's doing pretty damn well and is a great place to live or visit so I'm not sure your criticism is worth much. I mean you're right it is absolutely absurd that they're spending what, $150,000 on this silliness instead of spending over 50% of their discretionary budget ($693B) on a defense budget such that they spend as much as the next 7 countries in the world, combined, 5 of which are allies. That's not wasted money. Nor are they spending an additional $12B in agriculture subsidies in addition to the $20B in ag subsidies already paid to allow their leader to buy off his base while engaged in a pointless trade war, clearly not wasted money. Definitely focus on the $150,000, that's where the waste is!

Matthew 7:5 certainly applies here.

 

[Maverick2608]

So first off excise taxes and VAT are charged on consumption, income tax is charged on earnings, so combining them for a "combined marginal rate" is nonsensical. Even more so when considering that excise tax is only charged on a small minority of items like alcohol, so while consumption taxes aren't added when calculating a "combined marginal tax rate" in any case it makes even less sense to do so when it comes to a tax that doesn't even apply to most purchases.

That said, Denmark's doing pretty damn well and is a great place to live or visit so I'm not sure your criticism is worth much. I mean you're right it is absolutely absurd that they're spending what, $150,000 on this silliness instead of spending over 50% of their discretionary budget ($693B) on a defense budget such that they spend as much as the next 7 countries in the world, combined, 5 of which are allies. That's not wasted money. Nor are they spending an additional $12B in agriculture subsidies in addition to the $20B in ag subsidies already paid to allow their leader to buy off his base while engaged in a pointless trade war, clearly not wasted money. Definitely focus on the $150,000, that's where the waste is!

Matthew 7:5 certainly applies here.

Combined marginal tax rate: marginal income tax rate + VAT and excise taxes on an average basket of goods and services that reflect how people on average spend their income.

Yes, you can save your money and move to another country and spend it where VAT and excise taxes are lower. Yes, you can drive to another country and do your shopping. However, for the vast majority, people spend their money where they live.

When you buy a car in Denmark, you pay 25% VAT and 150% excise tax on top of that. If you want to own a car in Denmark, you have to pay. Of course the VAT and excise tax on fuel is also through the roof. The majority of goods are burdened with some kind of excise tax.

Country A: Marginal income tax rate of 50%. No VAT and no excise taxes. Combined marginal tax rate: 50%

Country B: Marginal income tax rate of 45%. High VAT and many excise taxes. Combined marginal tax: 67%.

Country B is of course characterized by the highest marginal tax burden. It doesn’t matter what you call it. Tax is tax.

In terms of military spending, I agree.

What most people do not know about Denmark:
- Over more than two decades Denmark has only fostered one company with more than 1,000 employees in Denmark
- Most successful tech companies founded by Danes – Skype, Tradeshift etc. - were created by Danes living abroad with no employees in Denmark
- People in Denmark (including the majority who derive their income from the government) make their living from companies like Novo Nordisk, Mærsk, Carlsberg, Grundfos, Danfoss, LEGO etc. These companies were all founded and became global many decades ago when the tax rates in Denmark were among the lowest in the world – at that time lower than in the US. That was when Denmark became one of the richest countries of the world.

The gravity of socialism is inevitable. Wait and see.

 

[Cuddles]

I understand the premise, though wonder how useful his posting will be. I also wonder why tech only? Does big oil, logging, and the fishing industry not exert political pressure and influence foreign policy? What is his political slant?

 

[Sig]

Combined marginal tax rate: marginal income tax rate + VAT and excise taxes on an average basket of goods and services that reflect how people on average spend their income.

Yes, you can save your money and move to another country and spend it where VAT and excise taxes are lower. Yes, you can drive to another country and do your shopping. However, for the vast majority, people spend their money where they live.

When you buy a car in Denmark, you pay 25% VAT and 150% excise tax on top of that. If you want to own a car in Denmark, you have to pay. Of course the VAT and excise tax on fuel is also through the roof. The majority of goods are burdened with some kind of excise tax.

Country A: Marginal income tax rate of 50%. No VAT and no excise taxes. Combined marginal tax rate: 50%

Country B: Marginal income tax rate of 45%. High VAT and many excise taxes. Combined marginal tax: 67%.

Country B is of course characterized by the highest marginal tax burden. It doesn’t matter what you call it. Tax is tax.

In terms of military spending, I agree.

What most people do not know about Denmark:
- Over more than two decades Denmark has only fostered one company with more than 1,000 employees in Denmark
- Most successful tech companies founded by Danes – Skype, Tradeshift etc. - were created by Danes living abroad with no employees in Denmark
- People in Denmark (including the majority who derive their income from the government) make their living from companies like Novo Nordisk, Mærsk, Carlsberg, Grundfos, Danfoss, LEGO etc. These companies were all founded and became global many decades ago when the tax rates in Denmark were among the lowest in the world – at that time lower than in the US. That was when Denmark became one of the richest countries of the world.

No, actually specific terms in economics have specific meaning. The term "marginal tax rate" very specifically means the amount of tax on the last dollar (marginal) earned. You can certainly make an argument for the impact of tax on someone living somewhere, but you can't just make up your own definition for an already defined term in widespread use. And your definition again fails the very definition of the word "marginal", you're actually attempting to calculate an average tax load which is a very different thing. Words matter.

It's also odd that you're criticizing Denmark for not having founded any successful tech companies and for making an effort to found more successful tech companies. As someone who's founded two successful tech companies I've got news for you, we don't choose where to found a company based on marginal (or average) tax rates (see almost perfect negative correlation between red states and tech startups in the U.S.). We do decide based on quality of living and workforce, something Denmark has a big advantage in precisely because of their tax base.

 

[Maverick2608]

No, actually specific terms in economics have specific meaning. The term "marginal tax rate" very specifically means the amount of tax on the last dollar (marginal) earned. You can certainly make an argument for the impact of tax on someone living somewhere, but you can't just make up your own definition for an already defined term in widespread use. And your definition again fails the very definition of the word "marginal", you're actually attempting to calculate an average tax load which is a very different thing. Words matter.

It's also odd that you're criticizing Denmark for not having founded any successful tech companies and for making an effort to found more successful tech companies. As someone who's founded two successful tech companies I've got news for you, we don't choose where to found a company based on marginal (or average) tax rates (see almost perfect negative correlation between red states and tech startups in the U.S.). We do decide based on quality of living and workforce, something Denmark has a big advantage in precisely because of their tax base.

I did not use the term “marginal tax rate.” I am not attempting to calculate an average tax load.

However, when searching Google I do agree that “combined marginal tax rate” is only rarely used in the context I have used it. In Denmark the term is used all the time. The reason obviously is that VAT and excise taxes are sky high in Denmark, so it makes a lot of sense to include their impact.

Cliff Asness has criticized US politicians when the politicians argue that US can have Scandinavian style welfare by just taxing the rich. He is right. You need high VAT and excise taxes and high tax rates kicking in at a very low levels of income. That comes at a cost.

The difference in tax burden between red states and states with a lot of tech startups is nothing compared to Denmark. I guarantee you Silicon Valley would never have become Silicon Valley at Danish tax rates (including VAT and excise taxes.)

 

[Sig]

I did not use the term “marginal tax rate.” I am not attempting to calculate an average tax load.

However, when searching Google I do agree that “combined marginal tax rate” is only rarely used in the context I have used it. In Denmark the term is used all the time. The reason obviously is that VAT and excise taxes are sky high in Denmark, so it makes a lot of sense to include their impact.

Cliff Asness has criticized US politicians when the politicians argue that US can have Scandinavian style welfare by just taxing the rich. He is right. You need high VAT and excise taxes and high tax rates kicking in at a very low levels of income. That comes at a cost.

The difference in tax burden between red states and states with a lot of tech startups is nothing compared to Denmark. I guarantee you Silicon Valley would never have become Silicon Valley at Danish tax rates (including VAT and excise taxes.)

Top marginal rate income tax (real marginal rate before consumption taxes) in CA (fed plus state) was 52.9% before the federal tax cut. Medicare marginal 2.35 (ignoring the employer portion). The sales tax in San Francisco is 8.5%. So taxes alone at 62.75% in the valley using your methodology. I don't think 4.25% on top of that makes or breaks anything, do you? Arguably when you add the cost of housing it's far more expensive to live in Silicon Valley than Denmark.
As I said before, we don't start companies and innovation doesn't happen based on low tax rates, or stop in response to high tax rates. I know conservatives don't like the reality of that, but of the hundreds of entrepreneurs I know exactly zero have said they think about taxes at all when it comes to location they're going to start their company and obviously they walk the walk when it comes to that.

It's always funny to me when politicians who have never started or run a company decide that they know best what it takes to motivate those who start and run companies and don't even bother to ask the folks who have or make some basic observations or do basic math.

 

[Maverick2608]

Top marginal rate income tax (real marginal rate before consumption taxes) in CA (fed plus state) was 52.9% before the federal tax cut. Medicare marginal 2.35 (ignoring the employer portion). The sales tax in San Francisco is 8.5%. So taxes alone at 62.75% in the valley using your methodology. I don't think 4.25% on top of that makes or breaks anything, do you? Arguably when you add the cost of housing it's far more expensive to live in Silicon Valley than Denmark.
As I said before, we don't start companies and innovation doesn't happen based on low tax rates, or stop in response to high tax rates. I know conservatives don't like the reality of that, but of the hundreds of entrepreneurs I know exactly zero have said they think about taxes at all when it comes to location they're going to start their company and obviously they walk the walk when it comes to that.

It's always funny to me when politicians who have never started or run a company decide that they know best what it takes to motivate those who start and run companies and don't even bother to ask the folks who have or make some basic observations or do basic math.

I will admit that 52.9% + 2.35% + employer portion (which is just as valid) is higher than I expected.

Let’s for the sake of simplicity leave excise taxes out of the equation (the 150% on cars for instance – by the way for smaller cars you get a bargain excise tax of only 85%.)

The marginal income tax in Denmark is 55.5% (including church tax of 0.8% which is voluntary). The sales tax in Denmark is 25%. So, the marginal tax rate including sales tax is calculated like this: 1 – (1 - 0.555) x (1 – 0.2) = 64.4%. The top rate, however, kicks in already at around USD 80.000.

But ok, put “free” healthcare, “free” universities, monthly payments to study, “free” pension when you get old or if you get sick or disabled, a sea of cultural offerings, low crime rates and so forth, I agree, the difference for wage earners is not that big. That is also the case when you compare Denmark with other European countries and include employer contributions (in Denmark there is no employer contribution). For wage earners Denmark is somewhere in the middle of the field.

However, I have saved the best (worst) for last. This is where Denmark stands out. I am sure you will agree that the vast majority of entrepreneurs fail. If you run the risk, put in all the hours and despite the odds end up with a successful business and cash in, what will you pay in CA?

In Denmark you will pay 22% corporate tax rate + 42% capital gains tax (which the current social democratic government wants to raise to 45% if it can get sufficient backing).

 

[Sig]

I will admit that 52.9% + 2.35% + employer portion (which is just as valid) is higher than I expected.

Let’s for the sake of simplicity leave excise taxes out of the equation (the 150% on cars for instance – by the way for smaller cars you get a bargain excise tax of only 85%.)

The marginal income tax in Denmark is 55.5% (including church tax of 0.8% which is voluntary). The sales tax in Denmark is 25%. So, the marginal tax rate including sales tax is calculated like this: 1 – (1 - 0.555) x (1 – 0.2) = 64.4%. The top rate, however, kicks in already at around USD 80.000.

But ok, put “free” healthcare, “free” universities, monthly payments to study, “free” pension when you get old or if you get sick or disabled, a sea of cultural offerings, low crime rates and so forth, I agree, the difference for wage earners is not that big. That is also the case when you compare Denmark with other European countries and include employer contributions (in Denmark there is no employer contribution). For wage earners Denmark is somewhere in the middle of the field.

However, I have saved the best (worst) for last. This is where Denmark stands out. I am sure you will agree that the vast majority of entrepreneurs fail. If you run the risk, put in all the hours and despite the odds end up with a successful business and cash in, what will you pay in CA?

In Denmark you will pay 22% corporate tax rate + 42% capital gains tax (which the current social democratic government wants to raise to 45% if it can get sufficient backing).

So again, I don't know a single entrepreneur who decides to start or not start a company based on the capital gains tax rate or where to start a company based on capital gains rate, it simply isn't a factor of any importance whatsoever among a myriad of factors that matter far more.
And again adding corporate tax to capital gains tax is nonsensical since you generally either pay the corp tax plus dividend tax or the capital gains tax alone when you sell your company. But even assuming that, doing the math on passing back income using corp tax plus dividend, until last year the U.S. marginal corporate tax rate was 35% and the dividend tax was 20% plus 3.8% NIIT. If you're talking about passing a profit back to yourself, in Denmark you would get 1*(1-.22)=.78*(1-.42)=$.4524 while in the U.S. you would have gotten 1*(1-.35)=.65*(1-.23.8)=.4953, again not an appreciable difference (although this is imperfect without knowing your dividend tax, I'm assuming probably incorrectly it's the same as your capital gains tax rate).

However, in general a tech entrepreneur is planning on selling the company as an exit, so they're looking purely at the capital gains tax rate. So, with that in mind in CA you pay regular state tax rates on capital gains, so you end up paying 20% federal long-term capital gains plus 3.8% NIIT plus 13.3% CA tax so a total of 37.1% vice 42% in Denmark. Again, no one except the president of the college young republicans club (who'll never actually start a company) thinks in terms of "Once I start a successful company and have a multi-million dollar exit I'll have to pay 4.9% more in capital gains tax if I'm in Denmark so I need to move somewhere else to start my company"! Seriously, ask 100 successful entrepreneurs if marginal capital gains tax rates figured at all into their decision to found or where to found, and if so how much weight they gave it. One would think one would do that at a minimum before deciding how tax rates impact their decisions, wouldn't you? And again, observed preference shows that entrepreneurs absolutely do not opt to go to Kansas, to save them 7.6% in tax (more than the Denmark/US delta) over California. And that's because Kansas is a red state shit-hole that no-one wants to live in, where they cut primary school to 4 days a week when they ran out of money because of the "Kansas Experiment" tax cuts so you have neither an educated or happy workforce, and Silicon Valley isn't (and neither is Denmark).

Maybe tax rates are a factor or motivator for large, mature companies and maybe for some individuals who have lost all perspective in life. It's simply patently false that they have any impact on tech entrepreneur's startup decisions. If Denmark matched rates for someone living in CA it would change nothing in their tech startup rate, they really need to focus on getting an ecosystem going which is what the program the OP brought up is all about. Although I'd argue they're devoting far too little resources to the effort. In fact if you asked me my completely inexpert opinion on what the single biggest reason was that tech companies don't succeed in Denmark it would have nothing to do with taxes, it would be the 6 consecutive weeks of vacation everyone takes every summer. I can't imagine how easy it would be for me to steamroll over a competitor who effectively closed up shop for 10% of the year.