The Danish Sperm Tax

May 26, 2005

Will a tax on sperm donation lead to a worldwide decline in fertility? From Reuters:

The source of the world's biggest sperm bank may soon run dry if Danish authorities decide to tax donors, Cryos International Sperm Bank said on Wednesday.

Denmark, with the world's highest income tax levels, wants sperm donors to pay tax on the 500 crown (US$84) reimbursement men receive for their services.

However, the story isn't what it seems. It turns out that until recently fees earned by sperm donors have been tax exempt. So the so-called "sperm tax" is in fact the removal of a distortionary tax preference from the Danish tax code. For better or worse, that's usually good tax policy since it simplifies tax rules and treats income from different sources more equally.

So will the sperm tax cause plummeting donations? Maybe—but not for the reason you'd think. Interestingly, it turns out Cryos predicts a drop in sperm donors not because of the economic impact of the tax, but because collecting the tax requires that the identity of donors be revealed to the government, which can lead to trouble with paternity suits down the road.

Cryos ... warns that forcing donors to identify themselves to recipients would mean that the supply of sperm donors would dry up ... The sperm bank based its comments on an internal survey of its 200 active donors that showed that only 12 percent would continue if they were forced to reveal their identity.

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