The sheer mathematical impossibility of American fiscal policy never ceases to amaze me.
Here we have the world’s largest economy, blessed with extraordinary dynamism and innovation, yet trapped in a consensus so delusional it would make a Danish politician from the 1970s blush. And I should know—I lived through Denmark’s fiscal crisis as a child, watching inflation destroy savings and unemployment ravaging communities.
The latest “One Big Beautiful Bill Act” perfectly encapsulates this delusion. Americans want Scandinavian-style social insurance programmes whilst maintaining Hong Kong-style tax rates. It’s rather like insisting you can fly by vigorously flapping your arms—the physics simply doesn’t work, no matter how fervently you believe.
As a classical liberal economist, I’m hardly advocating for Nordic-style income redistribution on a large scale—even though, ironically, Norway and Sweden have more dollar billionaires per capita than the US, and we actually had more income equality in Scandinavia BEFORE we expanded the public sector in the 1960s.
But my work on “The Free Enterprise Welfare State: A History of Denmark’s Unique Economic Model” for the Fraser Institute in 2023 reinforced something I already knew: fiscal mathematics is utterly indifferent to political preferences.
Following the current American debate over the “Big Beautiful Bill” has made me increasingly aware of just how delusional American fiscal discourse has become. When Social Democratic Danish Finance Minister Knud Heinesen declared in 1979 that Denmark stood at “the brink of the abyss,” he wasn’t being dramatic. He was doing arithmetic.
America’s Extremist Centre
Here’s what most commentators miss: America’s fiscal extremism isn’t found on the political fringes—it’s the mainstream consensus.
The supposed “middle ground” combines two fundamentally incompatible demands: expansive social programmes and low taxes for most Americans. This is the real extremism, far more dangerous than any fringe ideology.
Consider the numbers. According to the Congressional Budget Office, federal debt held by the public has reached 100% of GDP in 2025, with projections showing it will hit 118% by 2035 and 156% by 2055. Interest payments alone consume $952 billion annually—exceeding the entire defence budget. The Peterson Foundation calculates America borrows $2.6 billion daily just to service past borrowing.
The deficit for fiscal year 2025 is projected at $1.9 trillion, or 6.2% of GDP. By 2035, CBO projects the deficit will still hover around 6.1% of GDP. This isn’t a temporary pandemic aberration—it’s structural. And the CBO likely is far too optimistic.
Yet AP-NORC polling from 2023 shows 79% of Americans oppose any cuts to Social Security or Medicare. Simultaneously, they’re convinced someone else should foot the bill. And here’s where American fiscal discourse becomes truly fantastical.
Trump insists foreigners will pay through tariffs—as if Chinese exporters, not American consumers, bear the cost of import duties. Tax Foundation analysis shows even a 10% universal tariff would raise merely $2.2 trillion over a decade, whilst federal income taxes generate over $2 trillion annually. The Peterson Institute projects such tariffs would actually shrink GDP by 0.8-1.3% whilst eliminating up to 1.1 million jobs.
Meanwhile, self-proclaimed “democratic socialists” like New York’s Zohran Mamdani propose billionaires will pay through 2% wealth taxes and higher corporate rates, projecting perhaps $10 billion annually for New York—a rounding error against federal entitlement spending of $2.7 trillion.
These are the same fantasy dollars, just with different imaginary payers. Trump wants foreigners to pay. The ‘progressive’ left wants billionaires to pay. Both are peddling the same delusion: that someone else—anyone else but the broad middle class—can fund the government Americans want.
It’s fiscal fantasy of the highest order. Only the middle class has the numbers and income to generate the revenue needed, but in US, they don’t pay. And both parties promise they never will.
The Perfect Illustration: Opposition to the “Big Beautiful Bill”
Nothing illustrates America’s fiscal delusion better than the opposition to the “One Big Beautiful Bill Act.”
The primary critics aren’t fiscal conservatives alarmed by the $4 trillion in the mostly funded tax cuts over a decade.
No, the loudest opposition comes from Democrats attacking the bill’s modest attempts at entitlement reform – work requirements for Medicaid, restrictions on benefits for non-citizens, and efforts to reduce waste and fraud.
The Congressional Budget Office estimates the bill would cut federal spending on Medicaid and CHIP by $1.02 trillion, removing 10.5 million people from the programmes by 2034. Democrats decry this as cruel, yet these are precisely the kinds of reforms Denmark implemented decades ago—and more stringently. Our unemployment benefits require active job searching and participation in activation programmes. We means-test aggressively. We’ve raised retirement ages systematically.
Speaking of retirement ages, the contrast is stark. Denmark has followed a policy since 2006 that ties the retirement age directly to the average life expectancy of its citizens. The retirement age will increase in steps: to 68 by 2030, then to 69 by 2035, and finally reaching 70 by 2040. This isn’t arbitrary—it’s automatic, linked to life expectancy projections and reviewed every five years. By 2100, the retirement age is expected to be 77 if current trends continue.
Meanwhile, the current full retirement age is 67 years old for people attaining age 62 in 2025 in America, with no automatic adjustment mechanism. Some Republicans propose raising it to 69 or 70, but even these modest proposals face fierce opposition. The difference? Denmark’s reforms are systematic, mathematical, and depoliticised. America’s are sporadic, emotional, and paralysed by politics.
The bill would add $2.3 trillion to the deficit over 10 years whilst triggering automatic Medicare cuts of $490 billion—yet even these modest savings provoke hysteria. Meanwhile, the few remaining fiscal conservatives in the Republican Party have essentially capitulated, accepting massive tax cuts without corresponding spending reductions. The Tax Foundation estimates the bill would reduce federal tax revenue by $4 trillion between 2025 and 2034, with spending cuts offsetting less than half.
This perfectly encapsulates America’s bipartisan fiscal delusion: Republicans promise tax cuts without spending cuts, Democrats promise spending increases without tax increases on the middle class, and both attack anyone suggesting mathematical reality might intrude on their fantasies.
The Scandinavian Reality Check
Let me explain how Denmark actually works, since American politicians of all stripes seem incapable of understanding it. Denmark isn’t socialist – it’s fiscally conservative with redistribution. Following our near-catastrophe in 1982, when inflation hit double digits and government bond yields exceeded 20%, we implemented genuine reforms.
The 1982 government of Poul Schlüter broke with the failed Keynesian experiments of the 1970s through three key measures:
- Significant fiscal consolidation via spending cuts and tax reform
- A “hard” currency peg to the Deutsche Mark (now the Euro)
- De-indexation of wages and benefits to break the inflation spiral
These weren’t popular measures. But they worked. Inflation fell from over 10% to under 2%. Bond yields normalised. The economy recovered. Most importantly, they established a new consensus: fiscal responsibility isn’t optional.
Denmark’s approach to fiscal policy became significantly less Keynesian than America’s, focusing much more on the medium to long term.
We were remarkably instructed by our experience in the 1980s when fiscal contractions actually worked expansively—the Danish fiscal contraction had not hurt economic expansion. This “expansionary fiscal contraction” flew in the face of traditional Keynesian thinking but proved that credible fiscal consolidation could boost confidence and growth.
I know this because I lived it. As a policy analyst in the Danish Ministry of Economic Affairs during the second half of the 1990s, I worked for a coalition government led by Social Democrat Prime Minister Poul Nyrup Rasmussen, which included smaller centre-right parties.
That coalition government – with Social Democrats at the helm – implemented more entitlement reforms AND marginal income tax reductions than any Republican congressman could fantasise about. The Nyrup government tightened unemployment benefits, introduced activation requirements, reformed early retirement schemes, and actually cut top marginal tax rates. A Social Democratic-led coalition did this – because they understood fiscal reality and because that is what the Danish public demanded.
Today, Denmark operates under our 2012 Budget Law that basically semi-constitutionally mandates a structural public budget balance. It was a Social Democratic Finance Minister, Bjarne Corydon, who implemented this law. A Social Democrat enshrining fiscal discipline in law! When Social Democrats return to power, they don’t undo these reforms. They’ve learned.
The Danish Paradox: High Taxes, High Economic Freedom
Here’s what confounds American political discourse: despite our high taxes, Denmark consistently ranks as free or more economically free than the United States in many crucial areas.
The Heritage Foundation’s 2024 Index of Economic Freedom scores Denmark at 78 points—well above America’s historically low 70.1, placing the US at 25th globally. The Fraser Institute’s 2024 Economic Freedom of the World report ranks the United States 5th, with Denmark tied for 6th.
This isn’t a contradiction—it’s a lesson in what economic freedom actually means. Denmark excels in:
- Rule of law and property rights: Our courts are relatively efficient, contracts are enforced, and corruption is minimal
- Business freedom: Starting a business in Denmark takes hours, not weeks. We rank consistently in the top 5 globally for ease of doing business
- Labour market flexibility: Yes, we have strong unions, but also flexible hiring and firing rules—our “flexicurity” model
- Trade freedom: As a small open economy, we maintain minimal trade barriers
- Sound money: Our currency peg provides stability and predictability
What Americans fail to grasp is that economic freedom isn’t simply about low taxes – it’s about the ability to engage in voluntary exchange, enforce contracts, start businesses, and operate free from corruption.
Everyone Pays in Scandinavia
The fundamental difference between American and Scandinavian fiscal models is breathtakingly simple: everyone pays in Scandinavia. OECD data shows Denmark’s tax-to-GDP ratio at 46%, compared to America’s 27.7%. But it’s the structure that matters most.
Our 25% VAT ensures universal contribution—you pay every time you buy anything. Income taxes are genuinely broad-based: the top rate of 55.9% kicks in at just 1.2 times average income—around $60,000. In America, top rates only apply above $626,350.
According to the Tax Policy Center, 40-45% of American households pay no federal income tax whatsoever, whilst Tax Foundation data shows the top 1% pays 40.4% of all income taxes.
Here’s the crucial point Americans miss: Denmark has no wealth tax (Poul Nyrup Rasmussen’s Social Democratic government did that in 1997). Our corporate tax rate of 22% is actually lower than America’s 21% federal rate plus state taxes (the combined corporate tax rate in New York is for example 27-30%).
America’s problem isn’t that it doesn’t tax the rich- it’s that it doesn’t tax the middle class. The American left’s obsession with “soaking the rich” is mathematically futile. There simply aren’t enough millionaires and billionaires to fund a Scandinavian-style welfare state, even if you confiscated every penny they earned.
The mathematics is inescapable: you cannot fund universal programmes on the backs of a minority. Denmark learned this the hard way. In the 1970s, we tried funding expanding welfare programmes through narrow, progressive taxation. The result? Capital flight, economic stagnation, and near-fiscal collapse.
Compare Danish revenue sources with American ones:
- Denmark: Income taxes (40%), VAT (20%), Social contributions (20%), Other (20%)
- USA: Income taxes (50%), Payroll taxes (36%), Corporate (7%), Minimal consumption taxes (7%)
America’s reliance on volatile income taxes from high earners makes revenue unstable and politically vulnerable. Denmark’s broad base ensures everyone has skin in the game.
The Power of Automatic Stabilisers
Here’s another crucial difference American policymakers fail to understand: Denmark’s broad-based tax system creates powerful automatic fiscal stabilisers. Our VAT and comprehensive income taxes mean that when the economy slows, tax revenues automatically decline, providing stimulus without politicians having to pass emergency spending bills. When the economy booms, revenues automatically increase, cooling inflation without requiring discretionary tightening.
This is why Denmark rarely needs the kind of massive stimulus packages America deploys during every recession. Our fiscal system adjusts automatically. When consumption falls, VAT revenues drop immediately. When incomes decline, tax receipts fall across the entire income distribution, not just from a handful of high earners. The system breathes with the economy.
America’s narrow tax base—dependent on volatile capital gains and income taxes from the wealthy – provides weak automatic stabilisation. When markets crash, revenues collapse disproportionately. When they boom, windfalls create pressure for tax cuts rather than deficit reduction.
The result? Denmark maintains fiscal stability through the cycle. America swings wildly between deficits that are too large in good times and stimulus that arrives too late in bad times. Our system is boring but effective. America’s is exciting but dysfunctional.
A Classical Liberal Alternative for America
My preferred solution for America’s current fiscal crisis combines fiscal responsibility with individual ownership – learning from Denmark’s experience whilst avoiding our mistakes.
Introduce mandatory pension savings of 12-15% of income, funded partly by a new federal VAT of 10-15%. These would be genuine individual accounts, professionally managed but privately owned. Phase out Social Security over 30-40 years as these accounts mature. Similar approach for healthcare: mandatory health savings accounts, catastrophic insurance, and gradual Medicare phase-out.
The mathematics works: 10% VAT (with perfect compliance and no exemptions) could theoretically raise about 6.8–7.0% of GDP. Combined with mandatory savings, Americans could build substantial private assets. Chile’s pension reform, despite its flaws, shows the transition is feasible. Singapore’s CPF demonstrates how mandatory savings can replace traditional welfare.
This isn’t radical – it’s what most developed countries did before embracing pay-as-you-go systems. It avoids both America’s unfunded liabilities and Scandinavia’s work disincentives. Most importantly, it’s honest: genuine funding rather than intergenerational Ponzi schemes.
To be clear: I’m not suggesting this for Denmark, where I’d pursue different reforms (our pension system is already nearly fully funded and the fiscal house is in order). But for America’s specific circumstances – a culture of individual responsibility, entrepreneurial dynamism, and deep scepticism of government – this approach aligns with national values whilst addressing fiscal reality.
The Reform Imperative
America faces three possible paths:
- Implement broad-based taxation: A 15-20% federal VAT, middle-class income tax increases, carbon taxes, financial transaction taxes. This could stabilise the fiscal situation but requires political honesty about who pays.
- Genuine entitlement reform: Raise retirement ages, means-test benefits, shift to private accounts, introduce real healthcare competition. Painful but mathematically necessary.
- Financial crisis and forced adjustment: Continue current path until markets lose confidence. Then face all the above reforms simultaneously under crisis conditions.
Denmark chose a combination of options 1 and 2 after nearly experiencing option 3. We implemented broad taxes whilst simultaneously reforming our welfare state—activation requirements for unemployment benefits, pension age increases, partial privatisation of services.
The result? Danish government gross debt stands at 30% of GDP, compared to America’s 100%+.
But here’s what American politicians don’t grasp: Denmark’s net financial position is actually positive—the Danish state has net assets, not net debt. Trump once spoke of creating an American “Sovereign Wealth Fund.” Such funds require actual wealth. America has none; Denmark does.
Lessons from 45 Years of Danish Reforms
What America should learn from Denmark isn’t our welfare state—it’s our fiscal discipline. Since 1982, every Danish government, left or right, has accepted certain realities:
- Budgets must balance over the cycle
- Debt must remain sustainable
- Everyone must contribute
- Reforms must be continuous
We’ve raised pension ages systematically through our life expectancy linkage and tightened unemployment benefits. We’ve maintained fiscal surpluses in good years to prepare for bad ones. We’ve resisted the temptation to buy votes with unfunded promises.
The result? Denmark has seen GDP comparable to the US but without fiscal irrisponsibility.
The Coming American Reckoning
The Penn Wharton Budget Model warns that financial markets face limits in sustaining current deficit levels. Social Security’s trust funds deplete in 2034, Medicare’s Hospital Insurance fund in 2033, according to the 2024 Trustees Report. CBO projects net interest costs will reach $1.8 trillion by 2035—consuming 22.2% of federal revenues.
These aren’t distant abstractions. When trust funds “deplete,” benefits automatically cut by 20-25%. When interest costs crowd out other spending, hard choices become unavoidable. When markets lose confidence, borrowing costs spike overnight.
I’ve seen this film before. In Denmark in 1982. In Sweden in 1992. In countless countries that thought arithmetic was negotiable. The crisis always comes suddenly, after years of warnings ignored.
America possesses enormous advantages: reserve currency status, deep capital markets, entrepreneurial dynamism, vast resources. But these advantages aren’t permanent. They’re eroding with each trillion added to the debt, each year of fiscal irresponsibility, each political cycle that prioritises fantasy over mathematics.
My childhood in 1970s Denmark taught me that fiscal crises aren’t academic exercises. They’re lived experiences of inflation eating savings, unemployment destroying communities, and political systems failing their citizens. But Denmark’s subsequent 45 years of reform also taught me that recovery is possible – through genuine fiscal conservatism, not political fantasies.
America would do well to learn not just from Denmark’s mistakes, but from our hard-won reforms. The lesson isn’t to copy our welfare state – heaven forbid – but to understand that fiscal reality eventually asserts itself.
You can have a generous welfare state with high taxes, or a minimal state with low taxes. You cannot have generous welfare with low taxes, no matter how beautiful the bill promising otherwise.
Mathematics, unlike politics, doesn’t negotiate. And that’s a lesson best learned voluntarily, rather than having it imposed by markets that have lost patience with beautiful delusions.
