Different Cultures, Different Rules

A story about an incident in 2006 is suddenly getting a lot of attention on social media. An American woman temporarily working in Iceland “went from feeling a lump in her breast to getting checked out and assured that it was benign in the space of a single day, and for $3.” She posted the story of her experience on Twitter.

This gets many people stirred up, asking: Why can’t we do this in the United States? Some politicians think we can and are promising changes, but the comparisons are not as straightforward as we’d like them to be.

Iceland is a small, island nation in the North Atlantic with a population of about 350,000. For comparison, the city of Minneapolis has a population about 425,000. The entire country is smaller than many American cities. 

But it’s not just a matter of scale. Taking it a step further, that population is very homogenous. About 91% of the residents of Iceland are Icelandic citizens and only 16% are foreign-born. Unlike the US, the population is concentrated. Ninety-nine percent live in urban areas and 60% live very close to the capital. Furthermore, about 72% belonged to the same religion, the state Evangelical Lutheran Church of Iceland.

Back to our comparison example – where Iceland has homogeneity, Minneapolis has diversity. Its population is approximately 64% white from various heritages, 19% African American, 10% Hispanic and 7% various other ethnicities. It is the home of more than 50 denominations and religions.

How important is this homogeneity in the smooth operation of a more socially oriented society? Denmark believes it is vital to maintain the order and necessary shared values. “Beginning at the age of 1, [mostly Muslim immigrant] ‘ghetto children’ must be separated from their ‘ghetto parents’ for 25 hours per week for mandatory instruction in so-called ‘Danish values,’ which includes learning about the language and the traditions of Christmas and Easter, The New York Times reported in July 2018.”

(Again for comparison Denmark is about 35% larger than Maryland in area with about 5% fewer people. These are much smaller countries whose people share a common background and history.)

But there is no free lunch and no $3 health service without a huge subsidy. Here is a simplified comparison to make the point.

After a $5,145 deduction, Icelanders pay 36.94% of income up to about $85,000 and 46.24% on income above that. On top of that is a value added tax (VAT) of 24% on most goods and services, but a few categories are subject to a reduced rate of 11% (e.g. food, hotels, newspapers, books, and utilities).

Everyone in Iceland pays at least at the same level as the highest tax bracket in the US, 36.94% compared to 37%. They don’t “soak the rich;” they take it from everyone. On the other hand, their corporate tax rate is among the lowest.

In Minneapolis a single taxpayer owes no more than 17% on the first $85,000 after a standard deduction of $12,200 and pays about 8% sales tax, but not on food. (Sales tax and VAT are not identical, but the economic burden of VAT falls on the final consumer.)

Using those numbers, a single taxpayer earning only $20,000 in the US pays $780, whereas for the same situation in Iceland the tax bill would be roughly $5,500. When the money is spent, it is taxed again at a rate up to 16% more.

On another point, access to doctors is slightly better. Iceland has a physician ratio of 3.62 doctors per 1000. In the US it’s 2.3 doctors per 1000.

These and many other considerations are ignored by those who want to make simplistic comparisons, comparisons that in reality are light-years away from apples to apples. It would be nice to have all the benefits and not have to make any of the sacrifices, not have to adapt to an entire new set of values and expectations, not have to live within a completely different culture. (The US cannot even agree to have one official language!) But there are no simple answers.