The Tax Free Year Edition - by Guest Contributor
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The Tax Free Year Edition<br>On Denmark, 1969, and system migrations.<br>Guest Contributor<br>Jul 28, 2026
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Guan Yang (GY) is a former Danish tax resident now living in New York. He did not report any income in 1969.<br>Guan here. It is 1969 in Denmark. Birthe Kjær’s Cassatchok is the Dansktop song of the summer. Pornography is legalized in July. The second Olsen Banden film is released in October. Large protests against the Vietnam War are organized in fall. University governance reforms in the wake of the revolutions of 1968 are still being negotiated. And the entire year is tax free.<br>Until 1969, Danes filed a tax return at the beginning of each year, reporting income from the previous year. Tax bills would be calculated and the tax owed would be paid in quarterly installments. The quarterly tax bills were for tax on income earned last year, so Danes would spend 1969 paying taxes on their 1968 income.<br>Starting in 1970, European Denmark would switch to a modern tax system where employers withhold tax from wages, and self-employed people make estimated payments. (Greenland would follow in 1975, and the Faroe Islands in 1984.) In other words, in 1970, Danes would pay taxes on income earned in the same year, 1970.<br>In principle, they also owed taxes on their 1969 income, but with the new tax withholding, that would mean paying taxes for two income years (1969 and 1970) at the same time, which they could hardly afford.
A satirical drawing from the Aalborg Stiftstidende newspaper about the confusing new tax system.<br>The solution? 1969 income was made tax free, and the final installment of tax on 1968 income, which would normally be paid in the first quarter of 1970, was waived, making 1968 partially tax free also.<br>Why is this interesting?<br>Denmark was not the first country to transition from postpaid taxes to withholding, and not the first to have a “tax free” year in some form. The US had done it in 1943 and the UK in 1944. But both of those instances were in a wartime command economy, without normal economic forces in play. The Danish tax free year was in peacetime, and was also fully tax free, not partially like the American and British ones.<br>It wasn’t a complete free-for-all: tax returns still had to be filed for 1969, and were carefully scrutinized for any artificial moves of income into 1969, with tax levied on “abnormal” income. Workers with income more than 20% higher than in 1968 had to pay tax on the excess.<br>However, this still meant that a worker could increase their hours by 20%, and the extra income would not be taxed. And anyone who had been out of the labor market in 1968—for example students or homemakers—could start working in 1969, and as long as their income didn’t look too suspicious, that year’s wages would not be taxed.<br>The tax free year raises a lot of economic questions. How much more would people work if there were no income tax? How does that extra work affect the overall economy?<br>The total number of hours worked in industry increased 3.3% in 1969, and then fell 1.8% in 1970. The number of women working in industry increased 6.2% in 1969, and stayed high in 1970, before falling again in 1971.<br>The biggest impact might have been in the balance of payments. The new tax free income was spent on goods that could not all be produced in Denmark, so the country ended up importing more, which wasn’t made up for by increased exports from more manufacturing workers. The trade deficit widened in both 1969 and 1970.<br>In the end, the tax free year had substantial and measurable effects on the economy. But of course, it was short-lived. There was still a whole state to fund. (GY)
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