EP220 · Economy · first published 2023-11-08

Envy day, marginal rates and the YEL trap | Ivan Puopolo | Negotiator 220

This is a summary on Neuvottelija — Articles. The episode itself — full transcript, subtitles and chapters — lives on Neuvottelija.com, which is its canonical home.

Journalist and podcast host Ivan Puopolo joins Sami Miettinen in November 2023, just after Finland's annual publication of individual tax records. The episode is strongly opinionated and is marked as such; this article separates structural arguments from positions and either corrects or flags the contested claims. The most usable section is the breakdown of YEL, the Finnish self-employed pension: why a pay-as-you-go system carries demographic risk, and what the detail in the confirmed-income review procedure is that the episode calls a trap. The episode contains a commercial partnership, which is disclosed. The article has been checked against the publisher's own captions.

Sami Miettinen · Sections: AI and the Economy + AI and Society

Envy day, marginal rates and the YEL trap | Ivan Puopolo | Negotiator 220

Summary: Journalist and podcast host Ivan Puopolo joins Sami Miettinen in November 2023, just after Finland’s annual publication of individual tax records. The episode is strongly opinionated and is marked as such; this article separates structural arguments from positions and either corrects or flags the contested claims. The most usable section is the breakdown of YEL, the Finnish self-employed pension: why a pay-as-you-go system carries demographic risk, and what the detail in the confirmed-income review procedure is that the episode calls a trap. The episode contains a commercial partnership, which is disclosed. The article has been checked against the publisher’s own captions.

How to read this, and the disclosures

Ivan Puopolo is a journalist, podcast host and public commentator, and a regular guest on the channel. The recording is 8 November 2023, shortly after Finland’s annual publication of individual tax records.

Five disclosures, better made in advance:

• The episode is strongly opinionated. That is a genre, not a fault. This article separates structural arguments — those that can be checked or contested — from positions taken, and marks which is which.
• The episode contains a commercial partnership. It opens by recommending SAP Finland’s ERP Nyt! podcast series, made in collaboration with Suomen Podcastmedia. It is disclosed in the episode description and it is disclosed here.
• One contested claim is corrected here. The episode makes a claim about the gender pay gap that is not accurate in the form given; the correction is in section 5.
• One passage is left out. The guest assesses the competence and motives of a named expert in a way that cannot be verified here. The substantive disagreement is kept; the assessment of the person is removed.
• The source is the publisher’s own Finnish caption track and chapter list. The article was first written from YouTube’s automatic captions and has been checked again against the publisher’s track. Quotations follow the captions, translated; everything else is paraphrase.

1. Public tax records — and what is worth separating out

Finland is internationally unusual in publishing individual tax records at this level of detail. The episode calls the day envy day, and that is a position, not a description.

Two different things can nonetheless be separated out of it, and the distinction is useful regardless of what you think of the practice.

The first is structural and it is the episode’s best observation on the subject: the publicity is asymmetric. The justification offered for publication is societal openness. But the openness runs one way only:

• Visible: earned and capital income, and the tax paid on them.
• Not visible: income support, child benefit and other tax-free benefits.

The episode puts this as the question of whether you can check what benefits your neighbour receives. You cannot. The publicity applies to the payer, not the recipient. That is a structural observation, and it holds whether or not you regard it as a problem.

The second is a claim about motives, and it is marked here as a position: the episode’s view is that the practice is sustained by envy rather than by openness. A claim about motive cannot be checked, and it is recorded here as the episode’s view.

A data protection note, which is the episode’s most concrete point. The guest describes a blog post explaining how one could assemble a personal list from the tax records. The episode itself states that compiling such data into your own register — and particularly printing and distributing it — would in all likelihood be unlawful, and advises asking a lawyer. This article repeats that with the same weight: open data is not the same as a right to build a register from it. The publicity of an individual record and systematic collection are different matters in data protection law.

2. An insurance wrapper is not income — a real disagreement

This is the episode’s most substantive disagreement, and it is worth presenting without the personalities, because the substance survives that.

What is disputed: alongside the publication of tax records it was argued that insurance wrappers hide wealth from the tax-day statistics.

The episode’s answer is conceptual: what tax day shows is how much tax people paid on the previous year’s earned and capital income. An insurance wrapper is wealth, not income. It cannot appear in an income statistic because it is not income — not because it is hidden.

And the analogy that makes the point strong: exactly the same applies to an investment fund. Inside the fund are shares nobody sees individually, the value moves up and down, and the gain is realised only on sale. Nobody calls a fund a hiding place.

This is structurally correct. What it does not settle is the original concern: if you want to know about the distribution of wealth, an income statistic is the wrong instrument — but it does not follow that one may not be interested in the distribution of wealth. The episode does not draw that distinction; this article draws it here.

Proportions. The episode offers two figures, marked here as the speakers’ and not separately verified:

• In Sweden around 6 per cent of the population are millionaires; in Finland around 2 per cent.
• The top income in that year’s tax records ran to tens of millions of euros.

And connected to this is the episode’s most interesting single observation about mechanism, one that often goes unnoticed: a large taxable income can arise precisely because a large part of an ownership stake had to be sold to cover the tax. A figure on the list therefore does not necessarily record someone getting richer — it can record the opposite event.

The episode’s example is Wolt’s sale to DoorDash. When the share price collapsed after the deal, many Wolt millionaires, by the episode’s account, had to sell a large part of their holding just to pay the tax. Towards the end the episode extends the thought: nearly everyone at the top of the list has sold assets at a gain, so a single year compresses decades of work and under-payment. Spread over, say, 30 years, the sum no longer looks the same. The point about the nature of a capital gain is structurally right, although “nearly everyone” is the episode’s estimate rather than a checked figure.

3. The tax authority advises you to deduct — an observation that is true

A short but good passage, and one anyone can verify.

The Finnish Tax Administration itself gives taxpayers direct tips on reducing their tax burden — the household deduction, the home office deduction, travel costs and so on.

The episode’s conclusion has two parts, and both are worth reading:

• Nobody voluntarily pays more tax than they must, and every deduction gets used. This applies to high earners and everyone else alike. The episode notes that anyone could pay extra tax to the state voluntarily, and nobody does.
• Tax planning is therefore not a deviation from the system but part of it — the system invites it.

This is a useful observation even for someone who disagrees with the episode’s politics: using deductions is the behaviour the law intends, and a moral argument about it is a different argument from one about tax rates.

4. The marginal rate — what is checkable and what is not

The checkable part: Finland’s top marginal rate on earned income is around 59 per cent, among the highest in the EU. The episode notes that for a pensioner, and with church tax, it can exceed 60 per cent. According to the episode the top capital income tax rate, 34 per cent, is also the third highest in Europe; that figure is not separately verified here.

The behavioural argument is personal in the episode: one speaker “turns themselves in”, having cut back their own work because of tax many times. The mechanism can be stated without politics: when the marginal rate is 60 per cent, 40 per cent of extra pay is kept, so the price of leisure is only 40 per cent of the gross wage. The episode speaks of 60 per cent at this point; 40 per cent is this article’s calculation of the same thing. Not doing the extra work costs less than the nominal wage implies. This is a basic mechanism in economics and is not contested; what is contested is its magnitude across income levels.

The Constitutional Law Committee. The episode refers to the committee’s view that excessively high taxation can become confiscatory and so infringe the protection of property. The episode’s reading is that this would in practice set a limit somewhere — and the guest’s own, recurring proposal is to turn the limit the other way round: taxes and tax-like charges together should take at most 30 per cent. That is the episode’s political position, not the committee’s view, and it is marked as such here.

The US state comparison. The episode mentions that in some states taxing wages is prohibited. This is substantially right: the constitutions of Texas and Florida prohibit a personal income tax; in New Hampshire wage income is not taxed, but that is policy rather than a constitutional prohibition. The comparison is nonetheless asymmetric in a way the episode does not address: in those states taxation leans on sales and property taxes, and federal income tax is levied regardless.

The Danish study. The episode cites a Danish economic analysis: after a cut in the tax on wages, people who changed jobs raised their gross pay markedly, while those who stayed put in a civil-service job had no way to use the cut. The claim is that the effect shows slowly in the aggregate but immediately for the individual. The study is not named in the episode and has not been identified here, so it is marked as the speaker’s. The speaker also says something worth recording: the result is claimed as absolute truth because the speaker wants to believe it. That admission is honest, and more useful to a reader than many claims that sound certain.

And the passage where the episode says it most honestly. In the dispute over whether cutting top marginal rates increases employment, the episode’s position is that it need not be justified by employment at all. Assuming the cut had no dynamic effect:

Let’s pretend there isn’t one. Then it is simply right. It is right by people: less money is taken from them.

That is a value argument, and presenting it as a value argument is more honest than hiding behind a contested empirical claim. It is marked here as a value position, which one may accept or reject.

5. Correction: the gender pay gap

The episode asserts that the claim that women earn less is disinformation, and that adjusted for hours worked there is no gap. In that form the claim is wrong, and it is corrected here, because a reader might otherwise carry it onward.

What is known:

• The unadjusted earnings gap in Finland has long been around 16 per cent. That is not a claim about pay discrimination but a description of the difference in total earnings.
• A large share of the gap is explained by structure: sector, occupational position, working time and the distribution of family leave. This is the correct core of the episode’s argument.
• The unexplained share is nonetheless not zero. When structural factors are controlled for, research in Finland typically arrives at an unexplained gap of a few per cent. That is much smaller than the headline figure and clearly larger than zero.

The correct formulation is therefore: most of the earnings gap is explained by something other than different pay for the same work — but “no gap” is not accurate. Both sides oversimplify this debate, and the episode oversimplifies it in one direction.

6. Net recipients and net payers

The episode’s most general structural argument, marked here as a frame rather than a measurement.

The claim: a majority of the population are net recipients in public-sector money flows, and are therefore contented taxpayers. The payer side is not asked, and part of it does not publicly dare say anything other than that they are happy to pay tax.

What holds here: it is true that when public services are counted in, a clear majority of households receive more at a given moment than they pay in net terms, and that this creates a voting majority whose incentives differ from net payers’. This is a basic mechanism of public choice theory.

What is a position: that the silence is due to shame rather than to a different opinion. That is a claim about motive and is marked as such here.

And the part that sticks in the mind is an image rather than an analysis: money arriving from the state feels faceless and sourceless, because the collecting side is not visible. As an image it is effective; as an argument it amounts to saying that distance between funding and use weakens cost awareness. That is a known problem in public finance and applies equally to every large organisation.

7. The pension system: two risks, not one

Here the episode’s best section begins, because it stops being an exchange of opinions and starts being a description of mechanism.

A pay-as-you-go system — the current Finnish model — collects contributions from payers and distributes them directly to pensioners. A funded system — the Anglo-Saxon model — collects the money into a named account where it compounds.

The episode’s breakdown of the risks is precise and worth recording as given:

Demographic risk is the episode’s point: when there are too many recipients at the top relative to payers at the bottom, contributions do not suffice. That is not a forecast but a structural property of the system.

The direction the speakers favour is a more funded system, on two grounds: it would increase Finns’ personal wealth, and the money would be legally one’s own. That is a position and is marked as such — but it comes with an honest concession, which is the episode’s best passage:

The problem is the transition. The current system carries accrued pension liabilities, and they must be paid at the same time as people start saving into personal funded accounts. In the episode’s words, “the only way is a long transition”, and an estimate made with the economist Mauri Kotamäki puts it at perhaps a hundred years. It would not be a reversal but a slow shift in which the funded share keeps growing, and the earlier it starts, the sooner it arrives. According to the episode, a proposal in the same direction, a funding rate of about five per cent, was already made in 2015 in a book on how Finland could be saved.

The episode offers an estimate of the scale of those liabilities about which the speakers are themselves uncertain. It is not repeated here as a figure, because the episode does not confirm it.

8. YEL — the episode’s most usable section

This is the reason the article exists. It is concrete, it affects hundreds of thousands of people, and the episode presents it as a warning.

The starting point. YEL, the Finnish self-employed persons’ pension, is a pay-as-you-go system with paying entrepreneurs at the bottom and pensioners at the top. There are too few payers to cover the claims, so the state patches the difference out of its budget, by the episode’s figure around €400 million. At the same time entrepreneurs are widely known to have under-insured themselves — the declared confirmed income has been lower than actual activity.

The logical consequence of under-insuring, which the episode names drily: an under-insured entrepreneur is a cheap pensioner. A small contribution produces a small pension; entrepreneurs’ pensions are therefore smaller than employees’. That is not a surprise but the system working.

It is precisely for that reason that contributions were to be raised, and from that came the 2023 reform.

The mechanism the episode calls a trap. The pension company reviews an entrepreneur’s confirmed income and states its own estimate of the correct level. The procedure includes a transitional provision limiting the increase at any one review — the protected amount mentioned in the episode is €4,000. As the episode describes it, the confirmed income can then be raised by €4,000 at a time over two three-year periods, so the target level is reached only after about six years. The protection does not apply to an entrepreneur who changed their own confirmed income after 1 January 2023, and an increase above €4,000 requires the entrepreneur’s consent.

And what the episode warns about is the conditionality of that protection. As the episode describes it, the situation runs like this:

1. The pension company states its estimate — say, that your confirmed income is €150,000.
2. You disagree and propose a lower figure — say, €100,000.
3. If the figure you propose falls inside the company’s range, the company may accept it — but it is now your own application to change your confirmed income.
4. At that point the graduated protected amount no longer protects you, because it applies to an increase made on the company’s initiative, not to a change the entrepreneur has applied for.

The outcome the episode warns about: arguing back can lead to a larger increase than staying silent. It is counter-intuitive, which is why it is the episode’s single most valuable piece of information. According to the episode the decision can still be disputed, in which case the company apparently has to follow the phasing; if it is not disputed, the increase stands.

Two caveats that belong here rather than to the episode:

• This is the episode’s description of the procedure in 2023. The protected amount was a transitional provision, and transitional provisions expire. Nobody should make their own YEL decision on the basis of this article.
• The right approach is to check the current position with your own pension company, in writing if necessary, before proposing any figure.

Why the system irritates entrepreneurs, and the episode puts this well: confirmed income is an estimate, not an observation. Unlike an employee’s pension contribution, which is calculated from realised pay, the YEL contribution is calculated from a figure somebody decides. That is a structural difference, and it explains much of the dissatisfaction directed at it regardless of the level of the contribution.

The episode’s own proposal follows directly: the YEL contribution could be set afterwards from the tax decision, which shows the entrepreneur’s actual income at the end of the year, in the same way an employee’s contribution follows realised pay. That is a position, but a logical conclusion from the episode’s own argument.

And what generalises from it: when the basis for a charge is a negotiable number rather than a measurable quantity, the procedure becomes a negotiation — and in a negotiation the party who knows the rules is in the better position. That is this channel’s subject, and here it happens to arrive in the shape of a pension system.

9. Finally: what holds up

What holds:

• The asymmetry of public tax records. Payments are visible, benefits are not. A structural observation that holds regardless of position.
• An insurance wrapper is wealth, not income. Conceptually correct, and the fund analogy makes it strong.
• The demographic risk of pay-as-you-go and the market risk of funding. A clear breakdown in which neither is presented as risk-free.
• The YEL confirmed-income review procedure. Concrete, checkable and practically useful — provided the current position is verified separately.
• The admission about the transition. That the episode names accrued liabilities rather than mere political will as the obstacle to changing the pension system is more honest than one usually hears on the subject.

What is a position rather than an observation:

• Naming envy as the motive for publishing tax records.
• The proposal of a 30 per cent ceiling on taxes and tax-like charges.
• The claim that net payers’ silence is due to shame.
• Treating the Danish study as absolute truth. The speaker says the belief rests on wanting it to be true.

What is corrected: the claim that there is no gender earnings gap once adjusted for hours worked (section 5).

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