There doesn’t seem to be a thread yet for income/earnings taxation itself. Now there is.
Let’s discuss income tax, its amount, and its proper distribution.
Among the most equitable solutions would be a flat tax of 10–20% across all income brackets, also applying to trade unions, for example. Almost all subsidies and personal tax deductions could be eliminated at the same time.
The pension system should also be made voluntary; adults should be allowed to decide for themselves whether they want to participate and take responsibility for their decision.
26 Likes
It would indeed be equal and incentivize work. How this would be funded in our country is a slightly trickier question 
1 Like
Well, who says that the state has to be exactly the size it is today? 
Well, the simple answer is that it’s decided by those in income deciles 1-7, i.e., the so-called net beneficiaries. In a democracy, the word of 70% carries a lot of weight.
Personally, I would love to see a different state budget in many respects, and perhaps even that 20% flat tax. But my word doesn’t carry much weight in this system, so so much for that dream 
11 Likes
A couple of articles. And at the end, a cry for help from someone sinking into despair.
Net incomes for Finns haven’t really increased:
A good short article on the Danish model as a response to Sanna’s tax hike dreams (this article could, of course, be supplemented with a few essential points, such as the VAT rate as well as ease of dismissal + short but high unemployment benefits = labor market dynamism):
And to top it all off, the opinion of about 2/3 of the people saying “don’t you worry, we’re doing fine” (what did I say about the influence of those net-recipient income deciles on the direction of politics in a democracy):
Where on earth is this country heading?
No matter what statistic you look at, pretty much the only bright spot in anything was Sipilä’s term. Before that (Katainen’s “six-pack”) and after it (Sannalandia), we’ve only had one direction. By the end of Sipilä’s term, many indicators were already showing a nascent turnaround, and some had already turned. But that government then gained a reputation among the general public as arguably the worst exploitative government of all time.
Very little data has caught my eye suggesting that things are heading in a positive direction. I would gladly welcome such data if it exists.
14 Likes
I have the exact same observations as @SaastoPossu. I have the opportunity to do extra work alongside my permanent job for a few weeks a year. The pay for it is fine in itself, but once the taxman takes their cut, that pay starts looking pretty crap. In my own planning, I’ve concluded that I’d rather take a bit less pay and stress and more free time, because the difference in net pay is so small anyway.
In my opinion, such tight progression in income taxation and the overall tax burden in general are also morally questionable. Of course, it is used to provide services for the benefit of us all, but I still don’t think it’s right to take such a large portion of someone’s income.
5 Likes
That was an absolutely excellent piece about this country’s incentive problem. When you share this view, you’ll receive a mountain of feedback like “the privileged whining again,” or “the gentleman sure has small problems if those are them.” So, thumbs up for that
I believe that in the bigger picture, people act according to the incentives that are favorable to them. If incentives favor pushing yourself, then people will push themselves. If people are incentivized toward something else, then they do something else.
I’m not prone to conspiracy theories, but if you look at the tax curve and think about which income level is at the so-called optimal point (i.e., what creates an incentive not to strive for more), it inevitably occurs to me that it is in the interest of certain parties to keep a large enough share of people in a specific spot in the income deciles. The most “incentivized” point of the tax curve is also exactly such that a person is likely to be at least slightly dependent on transfer payments—i.e., the socialist state—for a large part of their life. You vote for the hand that feeds you.
11 Likes
I’ve never understood why the hell we even talk about gross salaries?
You don’t pay a single bill, buy a single commodity or service, or put a single euro into investments with your gross salary. Gross salary is just ink on your payslip, the practical significance of which is extremely questionable. Why would anyone care, or why should they give a damn, what it says on the payslip if the amount of money ending up in the bank account is in a completely different ballpark than the figure shown on that payslip?
A 100k gross salary in this country is roughly 50k in the bank account, thanks to various taxes and tax-like charges. Are citizens really so clueless about financial matters that they don’t understand the difference between gross and net pay, or is the truth about this massive gap between the gross salary and the amount ending up in the bank account so embarrassing that people don’t even dare to talk about it, because it would so effectively shatter the pipe dreams many have about the wonders of a massive public sector?
Why, when discussing salaries, wouldn’t we talk about the sums that actually end up in a working citizen’s bank account instead of talking—with the media’s strong accompaniment—about sums that can “at best” give an up to 50% too rosy picture of what actually matters?
And yeah, gross salary affects your pension. What a great “benefit”. In practice, this means that part of that difference between the gross salary and the sum ending up in your bank account is transferred monthly to a time when you are 65+. Surely nobody would have wanted those euros for living and investing during their active career? The theory of the time value of money also tells us that a euro when you are 65+ is more valuable than a euro today, or how did it go. 
20 Likes
A combination of these, I guess.
Clueless? Yes, some.
Not daring to speak because it would shatter the illusion? Especially this. I have come to the conclusion that Finns are very good at self-deception. Closing one’s eyes to the facts. That is why no downward-pointing indicator fazes the majority.
A good example of self-deception is the “free services” guaranteed by the welfare state. Nowadays, you actually have to pay quite significant sums for surprisingly many services—on top of taxes, of course. I’m not saying you have to pay “full price,” but I’m saying what I wrote: quite substantial sums nonetheless. Especially since they have to be paid from that net salary and not the gross salary, as the previous writer correctly reminded.
But apparently, it is more comfortable to bask in self-deception and convince oneself that we wouldn’t have such high taxes unless we were getting good value for them.
5 Likes
Gross salaries do not include employee-specific factors. Net pay, however, is affected by things like debt garnishment, union fees, and other possible payroll deductions (for some, for example, rent, phone, work clothes, or almost anything). And of course, there are so many personal factors in taxation, ranging from capital gains deductions to home renovations and commuting expenses.
Gross salary is really the only thing that makes sense to compare.
21 Likes
Here’s another truffle pig \0.
It seems to be a matter of school of thought, net or gross. Personally, I don’t understand messing around with net salary. Gross is what is discussed when you start a job, and it’s your “turnover”—the scale of operations where everything begins.
If we talk about capital gains from stocks, for example, we talk about gross capital gains before taxes. If desired, net figures are used to describe what was actually left in your pocket, the so-called “result.”
We all have massive differences when it comes to taxation, deductions, and all sorts of maneuvering. You can set your tax rate anywhere under the sun if you want. Gross is the only correct way to describe the scale of activity, meaning the value of your salary that is being paid for you. If there were a survey on this that included age, I think younger people like to talk about net and the older generation about gross. This is just a gut feeling from my own little bubble. EDIT: a bike can also be part of the salary.
5 Likes
Tax rate is a comfortable 42% of GDP. Which even Marin knows and can talk about, and it’s so wonderful. But public spending is a not-so-comfortable 54% of GDP, which no one knows how to or wants to ask the Prime Minister about.
The difference is explained, as I see it, not only by public debt but also by service fees for zoning, home care, and heaven knows what else. Some of which are excessive, while others replace tax-like items.
2 Likes
Excellent reflections on income taxes!
One thing I have wondered about for several years is the almost total unwillingness on both the right and left of the political spectrum to address income shifting. If I recall correctly, this was addressed in Norway several years ago, even with the support of the right, because the reforms also benefited high-income wage earners.
As an example (roughly simplified): In practice, in certain professions in Finland, it is possible as a sole entrepreneur to achieve a significantly lower tax rate through an unlisted limited company, even though the work itself doesn’t really change from what it would be as an employee (e.g., locum doctors, etc.).
By addressing this alone, the general level of income taxation could be lowered, which would benefit a much wider group – including high earners, a group to which I belong. Of course, the threshold for pushing such a change may be high, but one would think we could succeed as well.
8 Likes
Yeah, this is exactly the point that e.g. (@_neuvottelija_Sami_M) has been highlighting: what Finland’s total tax rate would be if the chronic deficit were factored in. When the deficit is chronic and covered by debt, it is self-deception to claim that Finland’s tax rate is ONLY the fifth highest. In reality, it is higher.
5 Likes
Exactly the same situation, as if it were from my own pen. With a master’s degree and increasing responsibility through experience, my salary has climbed to the point where I’m in the top decile of this country, but not yet in the top five percent. I have no interest whatsoever in pushing harder and, for example, moving up the organizational hierarchy when less than half of a thousand-euro raise stays in my pocket. Responsibility and workload, however, grow on a completely different scale.
My contribution, or the fact that it isn’t fully realized as a result, might not necessarily shake society or even the company I represent, but as SaastoPossu stated, many people are definitely struggling with this issue. In the big picture and on a large scale, this has a significant negative impact on Finland’s development when people skip that final push due to a lack of proper incentives.
7 Likes
It just occurred to me that Finnish political decision-makers seem to have succeeded in something, as this same incentive trap appears to run through all income deciles Whether you listen to someone living purely on benefits or anyone up to the highest income decile, the story is the same. Extra work isn’t worth the effort it would require.
That’s an achievement in itself 
16 Likes
Perhaps even more essential than a gross or net comparison is the purchasing power of Finns. What you get with that net in this country… Well… Not much at all.
I’m sure someone will play the welfare card and bring Africa and Asia into this again, but feel free 
5 Likes
Those of you with high incomes (50,000 and up). Have you ever considered setting up your own limited company and invoicing your current salary * employer side costs? For example, someone earning €60,000 could invoice 60,000 * 1.4 = €84,000 + VAT, which costs the employer the same. Additionally, if you pay the minimum YEL (entrepreneur’s pension), you don’t have to pay too much in pension contributions. From this, you then pay yourself a salary of, say, €40,000 and let the remaining €45,000 grow the equity. Furthermore, you always pay yourself the maximum amount of tax-relieved dividends. With such an arrangement, you never have to pay more than 34% in taxes. Also, if you’re afraid of the tax office’s interpretation—that you’re only working for one company and they view it as gaming the system—you could put a couple of apartments on the company’s balance sheet and disguise your true purpose this way. I’m still a student myself, so it’s not relevant yet, but this is at least what I plan to do in the future. And do tell me if this doesn’t work in practice.
10 Likes
This works in practice as well. However, you should probably avoid withdrawing dividends unless you really need the money, to avoid paying taxes prematurely.
If we aren’t doing so well economically, there’s no point whining about wars, pandemics, the aging population, or economic cycles. A nation of just under 6 million people can thrive economically in any situation, provided that political decisions are sound and farsighted in the long run.
Since we cannot influence the exchange rate, the most critical political decisions we can make to shape our future involve taxation, as well as the level and allocation of public spending.
Regarding taxation, we have spent the last 15 years guessing which taxes are the least harmful. As a result of this guesswork, taxes on capital, entrepreneurs, and ownership have risen, while taxes on the lowest earned incomes have fallen, as various decimals have been painstakingly tweaked in an effort to achieve the “least harmful” taxation. Judging by the fact that the national economy hasn’t seen growth for almost 15 years either, this strategy of nitpicking tax decimals hasn’t exactly been a winning one.
Now that the aging population is staring us in the face, budget deficits are staggering, growth is non-existent, the real estate market is at a standstill, zero interest rates are history, and government debt is excessive… perhaps something more radical needs to be done?
It’s simple, as there are only two options.
-
Tighten taxation across the board by 5–10 percentage points and use the proceeds to increase public spending.
-
Lower taxation across the board by 5–10 percentage points and cut public spending accordingly.
One of these remedies will surely work, and the other surely won’t. Once the direction is clear, double down on the same remedy.
3 Likes