Over half its economy is based on oil and mining. It has failed to develop meaningful economic diversification, and, because it has wisely banked so much of the proceeds of its oil (over US$300k per capita), there's not a lot of pressure to adapt.
Norway will not be a center of innovation anytime soon, except in oil-related fields. Eventually, as oil gets replaced as a source of energy, they may feel more pressure to change. But for now, they suffer from a more sophisticated version of the resource curse.
Sweden is an interesting counterexample, which has a lower GDP per capita but a much more diversified economy. Sweden abolished a wealth tax they used to have almost 20 years ago.
Because such a large portion of the oil proceeds are banked, it also distorts the rest of the economy far less than it otherwise would. Unless you live in very specific parts of Norway, you can go your entire life with hardly any exposure to the oil industry directly, or secondary interactions with major suppliers to the oil industry.
I recognize your point but am wary of it being supported with direct job creation numbers, as that doesn’t reflect the scale of secondary industries (ie. indirect jobs created by oil & mining may be a larger number than direct jobs created) and also, job numbers don’t reflect the scale of the companies creating the jobs.
EDIT: stackoverflow question:
https://skeptics.stackexchange.com/questions/15235/did-swedi...
The rest of europe absolutely cannot (but that won't stop them, just like with rent control).
Suppose the same principle was applied to a home owner. At the end of each year your property is evaluated and you're taxed on the difference between last and this years price. You own an asset and this asset is valued by the rating agency as more expensive than before. Now you have a liability that you need to pay and if you don't you'll be in big trouble, because you owe the money to the government.
So independently of your own actions & impossible to predict you will need to plan for this expense. How many homeowners and rentiers would like that?
The "realization principle" in tax law specifies that income is not subject to tax until it is "realized" through a taxable event, such as the sale or exchange of an asset. In the US this was established in early 20th-century U.S. Supreme Court cases such as Eisner v. Macomber (1920). In this case it was established that mere appreciation in value does not constitute taxable income until a sale or exchange occurs.
Europe is not very business friendly. This regulation will make creating businesses even harder. When governments need more revenue they need to create more opportunities to create that revenue, not squeeze the current business tighter and tighter. Startups are risky, adding additional risk would just kill more of them sooner.
BTW, it's easy to fix "loan against my equity" evasion by classifying the "money has been loaned" as a "realization" event.
Yes, it can be a challenge for fast-growing startups where the secondary market is not very liquid, and is something people need to be aware of. It's not generally a major problem, in that if you can't find ways of structuring deals in ways that allow for ensuring the founders can afford the tax bill, the company just isn't doing very well.
[1] https://www.nho.no/tema/privat-eierskap/ny-menon-rapport-kra...
Why wouldn't you just take a loan against the assets? A few percent of interest is a lot cheaper than 38%. In Canada you used to have to pay taxes on unrealized option gains, standard procedure was to take a loan to pay taxes. If the options gains disappeared, you'd use your next years tax refund to pay back the loan.
Not sure why that is comparable.
The other alternative is to borrow 1m, and pay interest on a 1m loan.
Unless you hold the loan long enough for the aggregate interest accrued until you're able to sell some shares exceeds the dividend tax, it's a net saving.
Looking at the US, rasing taxes on the rich and doing more against unrealized gains won't happen for at least four years, so we don't have to worry about that, at least.
This is a problem if you have no clue about the tax system and don't seek advice before your company has already reached a huge size.
I was 19 when I set up my first company in Norway, and had no prior exposure to business - I still knew the wealth tax was a thing to be aware of.
But government services cost money, and by other accounts [0] Norway are doing pretty well:
Norway performs well in many dimensions of well-being relative to other countries in the Better Life Index. Norway outperforms the average in jobs, work-life balance, education, health, environmental quality, social connections, civic engagement, safety and life satisfaction.
This gotta be the most extreme instance of NFT brain I've ever encountered...
They see "taxing the rich" first and foremost as punishing an ideological enemy, with little thought given to actually maximizing the tax revenue they can collect from them over time.
Socialist mostly want a floor so people don't starve to death or lose their roof to medical bills. That floor would be quite easily to establish at a comfortable life for 10 billion people on this planet while still allowing for more than enough many times over millionaires.
you pay tax on unrealised gains the same way the rest of us do when facing an unexpected bill that we can't afford - you sell your stuff.
It made more sense in the past, when speculative valuations were less common and capital flight was less of an issue. It was collected from wealthy people, who could probably afford to pay. And it served as an additional incentive to invest your wealth productively. But then globalization arrived and made the drawbacks bigger than the benefits.
Isn't this exactly how property taxes usually work? (In the absence of caps like California Prop 13, that is.)
The realization principle is a hallmark of income tax law, but many taxes are not income taxes.
Tax. Vacant. Land.
This is exactly how state property tax is assessed in the US. You're not taxed on just the difference but the entire assessed value of the house. There have been cases of seniors who have bought and lived in their homes for 30, 40 years having to sell because they could not afford the tax after the value of their home went into the stratosphere. Similarly for poorer neighborhoods experiencing gentrification when property value shot up beyond what the original buyer paid, and they are forced out. When objections are raised on how a wealth tax would be infeasible to administer, my rejoinder is local governments levy it all the time, on the middle class, they just call it a property tax.
Norway does apply the wealth tax to home owners. Though there is a discount factor for different types of assets, and the value of your primary home is discounted by 75%. There's also a minimum threshold.
If people there are OK with these taxes and don't vote them out it's their choice. My point is that it's a bad and wrong solution with bad consequences.
There is data about this: https://www.gemconsortium.org/data
And also check how many big companies have been started in the last 10 years in EU.
(I don't pretend to know the answer, and ask because I don't see how to figure that out)
They’re ‘unrealized gains’ for a reason.
That said, I also feel there is a way to do this tax properly.
The bridge that governments are attempting to make is between "you can't tax me on these, they're unrealized gains!" and "I'm going to fund my billionaire lifestyle by borrowing against these unrealized gains."
Maybe tax people on those unrealized gains if they use them as collateral?
Rent prices are extremely high and apartments are quite small compared to other European cities.
Alcohol is so expensive, that Norwegians go on alcohol shopping tours to Sweden.
Trains in Oslo don’t run 24 hours, so you have to take long detours with busses at night or pay obnoxiously high rates when taking a cab.
No, Norway is definitely not the paradise you’re trying to make it.
Also, these people that left Norway weren’t against paying taxes. They were against the socialist government trying to rip them off with a completely unfair taxation.
Of course data is not perfect, and there are often issues with methodology, data quality, or analysis the data. Even so, I usually find data more persuasive than anecdotes.
Rent is high in large parts because average incomes are high. This is one of the effects of a relatively flat income structure. As someone earning far above average, I'm better off in the UK, while someone on a job below the top ~10% or so would probably have a higher standard of living in Norway.
Not having things run 24/7 is annoying, but a factor of being a country with one of the lowest population densities in the world.
> They were against the socialist government trying to rip them off with a completely unfair taxation.
Nobody forced them to start their businesses. The wealth tax is not new, and has remained in place through both left- and right-wing governments, thought with some swings back and forth in rates.
However, to me this mostly looks like a practical issue, and the traditional dogma that a broader tax base is a better one likely holds here too. Taxes should be on all three categories, and for both legal and real persons - and thus each specific category lower (and in particular thereby reducing the height of specific niche corners cases such as this one, and also reducing the opportunity to game the system).
Also, it's interesting to listen to anecdotes like this, but caveat lector; the article's author's experience may not be the norm; and the issues they experienced may be due to the specifics of norway's taxation system or their personal choices, not the principles behind it; and last but not least as long as money can flow mostly freely between tax systems it's not enough for a system to be fair and well designed in a vacuum; it also need to consider how shifting wealth/income/profits across borders will affect outcomes.
To my mind, this is all pretty orthogonal to justice. Clearly, you see that differently. Why does this smack of injustice to you?
So that you know, the practice in question is to open a line of credit on the value of your stock. This enables you to put large amounts of money in your pocket without "realising" your gains. It's a blatant tax dodge. "going into debt" lol no. Close the loophole.
"unrealised gains". gains, not losses.
The "easy fix" isn't working for some reason. Perhaps a one-time tax is still preferable to an ongoing one.
Else, you won't have the concept of unjust laws.
I agree that there will be an ideologically divide, but I don’t think it’s related to entrepreneurship as much as it is to greed. Especially because those crypto “billionaires” were moving to Switzerland anyway. Personally I can see why you would think it was anti-business because it is. You have to keep in mind that not everyone thinks “businesses” which can’t make money, and likely never will, are always a benefit to society.
In terms of value, yes, it'd have a much greater impact, which is why they're being taxed at rates that even for Norway are absolutely extreme, and why the oil fund does not invest inside Norway, and why such a small proportion of the oil funds investment returns are spent each year - it's been a very intentional government policy for decades to both prepare for a future without the oil income and to reduce the effect it has.
Gee, I wonder who could possibly be financing voices to oppose a wealth tax at the government level. Maybe we should tax the wealthy to stop them from doing stuff like this.
although it doesn’t measure indirect effects of oil wealth on other sectors. but still, “petrostate” isn’t really accurate.
It's also the last time that ever happened - the Heathen Society tried repeatedly to provoke the use of the blasphemy paragraph for many years until it was repealed, and kept failing. The paragraph had at that point not actually been invoked since Arnulf Øverland was acquitted in 1933 (after being charged following a speech titled "Christianity, the tenth plague" - "Kristendommen, den tiende landeplage").
The real alternative is to not tax illiquid wealth.
Ones whose founders have protected themselves against a significant wealth tax bill by ensuring investment agreements etc. protect their ability to. It's not rocket science to make this work if you worry about it.
> The real alternative is to not tax illiquid wealth.
Why? Taxing illiquid wealth has worked just fine in Norway for decades.
To who? How?
The valuation for tax purposes of unlisted companies is the taxable valuation of the company assets excluding goodwill [1]. In practice this usually means the taxable value of e.g. a startup tends to be quite low.
[1] https://www.skatteetaten.no/rettskilder/type/handboker/skatt...
Mr Entrepreneur starts a business with $1,000 of his own capital and manages to grow his stake to $1,000,000. If the only way for him to use the $1,000,000 as collateral for a loan is to sell it and realize the gain, then he doesn’t need the loan anymore and a successful entrepreneur is deprived of ongoing ownership. But by allowing him to borrow on the $1,000,000 and taxing him, he is still able to maintain his share and use a portion of the loan proceeds to pay the new collateral tax. Netting less of the loan proceeds seems preferable for everyone than to force him to sell his stake.
Not really though. You do have deductions in the US (though limited).
https://www.irs.gov/credits-and-deductions-for-individuals
And lots of places don't tax houses or real estate.
Consider a though experiment: In a fast-growing world, taxation limited to profits when honestly applied and without exploitable loopholes (not an obviously satisfied precondition) might be able to cover costs of shared concerns, i.e. government's primary business. But imagine for a moment that that growth were to significantly slow or even stop - without profits, taxation could fall to a trickle (limited to those niches that have zero-sum profits yet lack the ability to amortize over loss making periods and lack the ability to strike a deal to fiscally merge with a loss-making business for tax purposes). Clearly, that's not sustainable. I think it's hard to imagine that the the only "just" way to tax is one that is fundamentally dependent on permanent significant growth, even if we've been lucky enough to live in such a world for quite a while, at least on paper. Given how some costs (e.g. depletion of natural resources and pollution) aren't on the fiscal books, and that from an idealistic free market stance one might prefer to include those costs on the books, the true global growth is surely already lower than it looks on paper, even if it's still hopefully positive.
The Norwegian wealth tax is 0 up until ~$150k, then 0.7% local tax and 0.3%-0.4% to the state.
So 1%-1.1% above the threshold. But this is of taxable value which for shares is discounted 20%, so the actual tax rate is ~0.8%.
But again, for unlisted companies, the taxable value is the taxable valuation of company assets excluding goodwill, so in practice, it's even lower than that.
What will Norwegian's representatives do they will do. It's stupid and will lead to bad things down the road. Norway is rich and can afford stupid politics for now.
It's also morally wrong, but morality and taxes are not the same.
Morality is subjective, so it's meaningless to argue it is morally wrong without making an argument for why.
Applying a tax when the financial purpose of the loan is solely to avoid paying any taxes on realizing the gains is what I’m talking about. This is demonstrably a vehicle of tax avoidance used by wealthy individuals to avoid taxes on what they would otherwise have to because they would have to sell the asset otherwise
These are variable rate short-term loans. Even the best, in the US, is WSJ prime rate - 0.75 points - that would be 7.25% right now.
Maybe when interest rates were near 0, you could have stretched it for a while, but it still sounds like little more than living off credit cards.
In the most simplified version of any of this though it either allows you to do the following
- delay paying taxes until you can’t snowball loans any longer. Then you transfer (not sell!) the assets to the bank and they sell it to cover the loan
- pay off the loan through the estate after death, which has its own tax implications can be structured in such a way to further avoid or mitigate taxes on these assets
- In the most common cases it allows the delay of sale long enough that you can cover the loan with a sale of other assets, e.g. real estate which have a different tax structure as well on income derived, and cover the loan that way.
Usually these types of loans are used to buy another investment vehicle, like real estate. Then those assets appreciate and are used to payoff the loan or roll into a bigger loan etc.
You really have to be of a certain asset class to do all this
[0]: https://smartasset.com/investing/buy-borrow-die-how-the-rich...
[1]: https://www.wsj.com/articles/buy-borrow-die-how-rich-america...
[2]: https://www.finra.org/investors/insights/securities-backed-l...
[3]: https://www.businessinsider.com/securities-asset-backed-loan...
Generally the amount you need for such services is more a function of how much non-vacant land you have in the area than how much vacant land, so unless switching to just taxing vacant land was accompanied by some tax on something else to cover the aforementioned things it would not work very well.
Locally people dodge the remit of the California Coastal Commission by converting land to farms because you can convert a farm to anything.
Norway has had this tax for decades, and done just fine.
> There is data about this: https://www.gemconsortium.org/data
I don't see any data that gives any useful indication about this there.
> And also check how many big companies have been started in the last 10 years in EU.
Norway isn't in the EU, and the EU doesn't have wealth taxes, so it doesn't seem awfully relevant.
Count the number of companies created and grown in the last 20 years and see the trend. If it's going down your tax revenues will decrease. So indeed number of companies created is a very good proxy for future tax revenues.
> Count the number of companies created and grown in the last 20 years and see the trend. If it's going down your tax revenues will decrease. So indeed number of companies created is a very good proxy for future tax revenues.
Even if it was that simple, that does not provide even a correlation - much less causation - with wealth taxes, which Norway has had for decades. E.g. we'd expect to see changes corresponding with changes in the wealth tax rates.
Of course, with the leaving tax, they may just move abroad before doing anything.
E.g. at a $10m valuation you'll end up paying <$90k wealth tax after rebates. If your company is valued enough that your shares are worth $10m, you can finance a $90k loan either directly or via your company, and bake it into your funding rounds. Yes, it's an extra drag on your business, but from first-hand experience, preparing for this just isn't a big deal in most instances.
You don't have to like it, and people are free to whine about it, but in reality it's a problem only if you don't know what you're doing.
Maybe? Or maybe it's just a PITA that most people don't want to deal with? It's not nice when you company is doing well, and your reward is having to pay a bunch of extra taxes and deal with financing all that somehow.
At least, I find paying income/value-added tax a lot more palatable, since it's always over money you just received, not money you have to conjure into existence somehow.
It’s not a straightforward tax like income tax, it’s more of a class based tax that has some aspects in common with income / CG taxes.
It makes sense when you consider that the capital owning class is and was always the most well off, even more so than aristocrats, since the Industrial Revolution anyway.
What you're saying is people aren't allowed to save for retirement, and you have to tax them every step of the way, destroying that savings because they might be well off due to owning stocks. That's not reasonable.
Obviously you need to be a bit sane about it; I have "unrealized gains" by virtue of having stock options in a company, but while I'm paid well I'm definitely not rich by any stretch. I'm just some dude with stock.
Communism differs in that it takes this a step further advocating not only for social ownership but also the dissolution of of all private property ownership and its corresponding economic role, and distribution, and exchange that allocates products to everyone in the society based on need.
For the record, I think communism is a dead end as it flys in the face of human nature. Market socialism might have legs though.
I was being a bit tongue in cheek but taxes aren’t inherently socialism. Taxation has been levied under multiple periods of economic philosophy like in feudal Europe or during the age of mercantilism for example. Seems to be a hallmark of highly organized civilizations
Something like an employee owned co-op is a valid socialist concept, for example. Social doesn’t automatically mean government.
Though communists like Marx believed in revolutionary uprising and those tend to be inherently violent. It’s a shame that the only exposure people have to any form of socialist ideas is via Marx.
If you have an innovation fixation and only give a shit about unicorns, you aren't going to even perceive the cooperatives and mutuals that have survived six monarchs. Especially if they are mostly outside your country and you're congenitally parochial.
I do definitely think that just labeling every government overreach that one dislikes as "socialism" is not the most useful.
Companies and people need to generate money to pay for these. Profits are created by economic activity. When you increase the risk for companies to die by creating a cost that is not easily planned you decrease your future revenues. just basic math...
At the same time there is a significant social good in encouraging efficient investment of capital. If someone can't get returns sufficient that the wealth tax is nothing but a minor nuisance, it's better that capital gets distributed elsewhere.
For example, I have (in what I realize is largely futile) advocated for a return to using more accurate political terms for describing philosophies. Left and right are terrible terms to use for this. Liberal, Progressive are Conservative are much better, but still lack some depth for range. Terms like fascism, neoliberal, neoconservative etc are much better and better represent ideas in discourse.
Folks who seriously think about socialism as a real economic philosophy often also have accompanying liberal and/or progressive ideas attached to it, like higher taxes to fund social safety nets and better schools, for example.
They however aren’t the same thing. Taxes are a political act with economic consequences, regardless of what those consequences are.
Where as social ownership of the economy can have more diversity in practical implementation and thus should not be lumped together like it is.
I realize this isn’t a common discussion point, particularly in the US where these philosophies were never given equal footing to capitalism[0]. Frankly I sincerely believe most Americans, even educated folks who should know better, don’t differentiate socialism from communism and use the terms at least somewhat interchangeably and often incorrectly.
[0]: free markets aren’t inherent to only capitalism either. They absolutely exist in a market socialist economy. Remember the origins of corporations were chartered with expectation they would serve a purpose that demonstrably benefited the public good
There can be extreme corner cases where it's a challenge, but it's extremely rare.
Poll taxes, and even flat taxes can also be seen as unjust taxes on ‘money you do not have’ when you subtract the cost of life from someone’s income.
This one is novel in the modern era because it only substantially negatively affects capital owners, rather than wage / fixed income earners.
As both capital owner and wage worker though, I just see it as yet another potential headwind… and yes, there are class dynamics at play that go beyond the economy and up into political power and the state.
The RRSP is what I think is called a 401K in the USA: you put money in pre-tax and pay income tax when you liquidate/withdraw in the future.
The TFSA you put post-tax money into and pay no tax to withdraw, including CGT, though there is a maximum capacity.
I would imagine if this tax came to Canada, RRSPs and TFSAs would be exempt from it.
My brokerage lets me open RRSP, TFSA and a standard cash/chequing to buy securities, but CGT only applies to the cash account which I don’t use as I haven’t maxed out the others. If I was maxing out the others, I’d have enough slack to do the financial dance, at least in the governments eyes…
Did the lawmakers in Norway make such exceptions and adjust for this? Or are they just trying to keep people dependent? Why should we trust Canada or the U.S. to be any better if they tried to put this sort of law in place? There would be loopholes for the very rich (which includes the political class), and everyone else that didn't have the "capital" to leave would be screwed.
If you really want to fix things, tax capital gains from financial instruments (stocks, bonds, options, and all the ridiculous leveraged instruments on top) as regular income, and tax loans taken against such securities. At the same time, tax owned but unoccupied buildings and land, and restrict foreign ownership of real estate (you need disincentives for rent-seeking behavior and land as investment).
So you can still invest to your heart's content, but there's not a perverse incentive to hoard or leverage. If you can make more by building something do that.
But, but, but... those rich people! Stop worrying about people being rich, and stop trying to hand the government ways to confiscate, because every new method for confiscation gets enshrined in perpetuity. Having them crossing this line into imagining what you maybe, perhaps, could have gained in some alternate reality where you took some action, and taxing you based on something that didn't happen is bananas.
The rate I gave was for Bancorp's best SBLOC, for loans of over $10 million.
HELOC rates (home equity loan) are anywhere from 7.65-8.6% right now.
It doesn't take many years before you end up paying more in interest than you would have had to pay in capital gains - and of course, you need to pay back SBLOCs every year with interest, so you're having to sell assets - and paying capital gains.
It wouldn't have been quite so bad when interest rates were low and you could get a line of credit for 3%, but those days are long gone.
We are talking about folks who typically have 50 million USD+ in assets. They may even do all this via their own private corporation investment vehicles which further skews things.
This is why I was talking about wealth qualifications. all these loan types can be used in other scenarios, but the scenario I reference has a certain pattern to it that is unique to tax avoidance schemes. It’s a combination of factors not only one thing.
Let’s take it at face value though. How fast do you think Mark Zuckerbergs wealth grows in a year? Or how about the CEO of any major corporation for that matter? Or even someone who heads a private company with say $150 Million ARR?
Do you think it’s less than 8%? Heck do you think it’s less than 15%?
And this is before we start accounting for things like tax deductions for the interest paid on the loans
For goodness sake, the interbank rate right now is 4.8%. No one is getting close to that no matter how much they are worth.
Someone like Mark Zuckerberg does not need this for anything but short-term cash - where you don't want to, or can't do to trading rules, liquidate assets immediately or all at once. Instead you get a loan, sell assets slowly to cover it and repay it as quickly as you can.
The idea that someone in their 40s is living off debt as a capital gains tax avoidance strategy frankly sounds like someone has mistaken a financial services advertisement for a sound strategy.
These types of loans are absolutely used as part of tax avoidance strategies employed by net worth individuals of a certain asset class. It is unlikely anyone on HN is doing this successfully if at all. As I repeatedly indicated it’s used successfully by people in a certain asset class, and it’s part of a broader strategy regarding how wealth is managed for the individuals that are able to take advantage of this.
I also linked several articles on how these things work, here’s another that talks about the tax loophole specifically: https://equitablegrowth.org/closing-the-billionaire-borrowin...
I did not say it’s the only way people live off their wealth though. That is something I never stated or indicated
Now as far as the rates go I wish I could find the article that that talks about it from earlier this year, but yeah if you really are super high net worth you aren’t paying 7%, but even if we take that off the table for the sake of argument, if you expect to net more than interest paid by a significant enough margin the loans still make sense, and for the class of folks I’m talking about they will almost always be able to outpace the rate by a significant margin