Retire In Finland

making the move of a lifetime

Let’s Talk Taxes

It comes up numerous time when I visit Finland; everyone wants to talk about taxes. It’s a conversation I find really difficult because the two systems are so very different. I have to admit that I don’t understand the Finnish tax system very well but I understand that in Finland, income taxes pay for a variety of services such as education, health care and child care, which we pay for through local taxes and insurance premiums. It’s not effective therefore to compare only income taxes because they don’t really tell the whole story. (There is a good discussion of this topic in Anu Partanen’s new book, The Nordic Theory of Everything: In Search of a Better Life, available at Amazon. You can buy it here).

Finnish income taxes can be calculated using an online tax calculator. The median wage in 2011 was 2,776 euros per month according to YLE, or 33,312 euros per year ($36165.17).  If I use the calculator with the median income for a person my age living in Hyvinkää, not belonging to a church and with no other benefits, I get a total tax bill of 6521,85€ ($7,080.45). The marginal tax rate is 39.5. The effective rate is 18.38. This seems pretty low to me. If you are reading this in Finland, leave me a comment and tell me what I’m missing.

In the United States, federal income tax on a salary of $36,165 for a single taxpayer without deductions would be $3,410 (3140.98€). In Massachusetts, where I live, the state income tax would be $1,620 (1492.19€) for a single taxpayer. Social Security would take another $2,767 (2548.70€).  Property taxes would take, on average, another $1,916 (1764.84€) for a total $9713 (8496.71€) in taxes for an effective rate of 26.86.  I’m including property taxes in this total because in the US, education through secondary school is funded through property taxes, as are all local services such as police, libraries, and fire department.

In Finland, health care is funded primarily through income taxes. I understand that there is also a network of private insurers and physicians,  but I am not in a position to discuss that with any authority. Here in the US we have the ACA, the Affordable Care Act– affectionately (or not!) known as Obamacare. Until this became the law of the land, Americans were either insured by their employers (sharing the cost of the insurance with the employer in a multitude of different schemes), buying insurance individually (paying the entire premiums out of pocket) or taking their chances (uninsured, hoping to not get sick). Now under Obamacare, American taxpayers are required by federal law to have health insurance. Being uninsured brings an additional hit of $700 to the federal tax bill. Being required to carry health insurance, then, can be considered in some way to be an additional tax, especially so when comparing to other countries such as Finland where healthcare is funded through income taxes.

So how much does health insurance cost in America? The cost varies widely. That said, the average health insurance premium in the US reached $17,545 (16,161€) this year. The average worker pays $4,955 (4564€) for that insurance according to the Kaiser Family Foundation/Health & Education Trust (Sept. 22, 2015). I’ll tell you about our situation: My husband is a state employee and buys health insurance through his employer that covers both of us in a family plan. He pays only 25% of the cost of his insurance and his employer pays 75%. There are several different plans available to each employee ranging in price up to around $500 per month (employee share).  We have chosen the cheapest family plan for which we pay $295 (272€) per month, or $3,540 (3261€) per year. On top of this we have a $600 (553€) family deductible which means that insurance benefits start to pay once we have ourselves paid for the first $600 of medical expenses. There are copays and coinsurance that also are also paid out during the year as we go along that during a typical year is probably a few hundred more. Keep in mind that what I’m writing about here is a family plan. A single person working for the Commonwealth of Massachusetts would pay roughly half which I’m estimating here to be $2025 if he/she actually uses the medical system and pays out a deductible.

So how much would this median wage Finnish worker be paying in the US for roughly the same services he receives in Finland (assuming he doesn’t need unemployment, disability, parental leave, housing subsidy, college tuition, etc.)? Adding up the taxes and the medical insurance he would pay $11,738 (10,812€). That’s an effective rate of 32.5%. It’s about 4,290€ or $4,658 more than in Finland and he wouldn’t get the same level of services as in Finland!

To tell you the truth, these numbers surprised me. Before I started this post I expected to find that Americans pay more for services than Finns when it’s all taken into account but I did not expect to find the spread to be so large. I haven’t even taken into consideration that Americans generally pay much more for college tuition, telecommunications, housing and childcare than Finns do. I’ve got to be missing something pretty big. Now I’m going to ask you, my reader, to consider these numbers and tell me if I’m wrong or right. Leave a comment, PLEASE.

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3 Comments

  1. Sam

    A significant source of tax income is the value-added tax (VAT) on goods and services. In Finland, the VAT rate is one of the highest in Europe. Hence the prices of the everyday products are high in general. The normal rate is 24%. The reduced rates are 14% (food, restaurant services) and 10% (books, medicine, cultural events, sports and physical exercise, public transport, hotels, etc.). In addition, alcohol and tobacco are heavily taxed. VAT is always included in price. On the other hand, tipping is not expected.

    If you can read Finnish, here you can get an idea on how much your monthly shoppings would cost in Finland:
    http://www.foodie.fi

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