Taxing unrealized gains has caused an entrepreneurial exodus in Norway | Hacker News Reader

Taxing unrealized gains has caused an entrepreneurial exodus in Norway

paragraph.xyz

94 pointskoevet144 comments

Norway doesn't care. It is a country with a reputation for good governance and northern-European economic strength. But economically, it is a country that is largely a gas station: like a democratic Russia with more competent governance.

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.

In a nutshell, Norway can afford to have some mildly self-sabotaging economic policies.

The rest of europe absolutely cannot (but that won't stop them, just like with rent control).

Is this tax because the state needs the money or is it social engineering?

All tax regimes, including zero tax, are social engineering.

Norway has a good oil refinery industry though. They refine oil from other places because they're so good at it.

Over half of the value of exports is oil and mining, but oil production, mining and quarrying directly employ only about 23,000 people, compared to 190,000 in manufacturing for example.

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.

Warning: not an economist :)

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.

There's now doubt it'd have secondary effects, which is why I didn't try to make a precise comparison. Shutting down the oil industry would certainly make a difference. Hence the focus on shuffling so much of it into the oil fund (the Norwegian sovereign wealth fund owns ~1.5% of all listed shares globally at this point) to compensate, but there's no realistic scenario where it'd account for a large proportion of jobs.

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.

I bet they do care. "Reputation for good governance" is usually a cultural thing. I doubt they want to turn into Venezuela.

I thought sweden did the same sort of thing until some famous person had > 100% tax rate and got politicians voted out in outrage.

EDIT: stackoverflow question:

https://skeptics.stackexchange.com/questions/15235/did-swedi...

This is a bad solution to taxation. It brakes the long-established tax practice of "realization principle".

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.

The other thing is what happens when the notional value goes down a year later? Do they get a tax refund?

At most you'd get a rebate of your future tax payment as is the current practice.

Usually, you get a credit or deduction that can only apply to future tax liability in the same category. Ex: Capital losses are stuck with capital gains in the USA and can only be applied to $3000 of your income per year otherwise. These rule systems are usually incredibly self-serving.

Yes.

The wealth tax is yearly based on your wealth that year.

Oh right so it's not a tax on the gains in that year. Makes sense then, if it's just a wealth tax.

> 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...

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.

In some states there are, which is also a bad & unjust practice. The difference is that the rates are between 0.49% and 2.5% and reassessment period differs between the states/localities (these are local taxes). This is way less that the proposed Norway taxes and "value" can be established much more justly than a "startup shares".

So, it's OK if it has rules and the Norway laws don't have any rules... is that what you're saying here/

The principle of taxation without value exchanging hands will lead to bad consequences, this is the point I'm trying to make.

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.

Norway has done this for many decades. It's worked just fine.

Morality is subjective, so it's meaningless to argue it is morally wrong without making an argument for why.

> This is way less that the proposed Norway taxes and "value" can be established much more justly than a "startup shares".

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.

Yes and property taxes are terrible.

Tax. Vacant. Land.

Put. A. Farm. On. Each. Plot. Of. Land.

Locally people dodge the remit of the California Coastal Commission by converting land to farms because you can convert a farm to anything.

In the US property taxes largely go to fund public schools, local police/fire/emergency medical service, parks, roads, sewer, water, and trash collection.

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.

The fairest system would be a flat tax per person, surely. Each person will use a pretty average amount of state resources. It's expensive to live in California, after all.

I can remember when people actually advocated for a flat tax with a straight face. Freaking hilarious idea supported by shallow thinkers.

It wouldn't surprise me, though I've usually seen that applied as a reductio ad absurdum to show that the notion of a flat percentage as "fair" is arbitrary because surely a flat tax would be even fairer - on the basis that it highlights how flattening out the tax curve can make the burden on the poorest unsustainable.

Land value tax is the most effective tool in creating market conditions for real estate

Wealth tax is a long-established practice in Germanic Europe. The list of countries that collected it in 1965 is kind of interesting: Austria, Denmark, Finland, Germany, Netherlands, Norway, Sweden, and Switzerland. Most of them eventually abolished it.

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.

There is still a wealth tax in Germany which is, in fact, enshrined in its constitution. However, the tax has not been collected since 1997 due to legal issues regarding its calculation. Back then, the constitutional court decided that wealth in the form of properties would have to be taxed more. However, instead of adjusting the calculation, politics instead decided to suspend collecting the tax. Ever since, there have been multiple political initiatives aimed at restarting the collection of the tax, none successful so far, despite a large majority of Germans (70+%) being in favor of collecting the wealth tax.

>Ever since, there have been multiple political initiatives aimed at restarting the collection of the tax, none successful so far, despite a large majority of Germans (70+%) being in favor of collecting the wealth tax.

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.

> Suppose the same principle was applied to a home owner.

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.

There is a difference between a well-established market with "value" that is established and something much more speculative like other type of assets.

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.

> 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.

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.

Taxes are levied on economic activity. In capitalist systems the main economic activity is created by companies by direct tax on profits or direct tax on labor they buy (wages for the workers).

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.

Taxes are levied on all kinds of things that are not economic activity. Including, in Norway, on ownership.

> 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.

Yes, I agree with you that taxes can be levied on property too, but to pay for those taxes economic activity is needed. I don't see how it's different though.

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...

> 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.

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.

I've started several companies in Norway. When I moved to the UK, the wealth tax was not even remotely a consideration, even though my shares were at the time valued in the millions - we moved because getting the size investment we needed to grow in Norway was too hard at that time.

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.

Note that the total tax burden has, at least seemingly, increased significantly under the current government [1]. So the conditions may have changed

[1] https://www.nho.no/tema/privat-eierskap/ny-menon-rapport-kra...

It's a creative presentation that presents it in terms of percentages of taxation of ownership while assuming most wealth tax would be paid with dividends (which makes sense in a mature company, not in a startup, where you might be more likely to find other approaches). It's not changed enough to make much difference from when I dealt with it.

> This creates a perverse scenario where business owners must extract dividends or sell shares every year just to cover their tax bill. With dividend and capital gains taxes at around 38%, you need to withdraw approximately 1.6 million NOK to pay a 1 million NOK wealth tax bill.

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.

If they took a loan then they would have to stay and waste this perfectly good excuse to do what they wanted to do anyway.

And how would they pay back a loan?

If their business grows at a rate higher than interest, there's no reason why the bank wouldn't be happy to add the interest to the loan. If their business is growing at a rate lower than interest, it's a poor investment and they ought to sell it off and put their money somewhere else. Such as lending it out.

> sell if off

To who? How?

If you can't find a buyer, then close it down and sell the assets. The point being that if your business isn't capable of raising capital equivalent to 1% of its taxable value, then this generally isn't a reasonable business.

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...

This is just delaying the payment. OK, let's assume they do it for 1,2,3 years and that the bank is happy not to receive any payment in those 3 years. Now they've accrued interest-on-interest and the more time passes the more they'd have to pay back. So my question remains - one day they'd have to pay it back and on that day they'd have to sell assets and pay 36% tax.

Standard practice in America is to not pay them back, to hold the loan until death. The estate pays off the loan.

> A few percent of interest is a lot cheaper than 38%

Not sure why that is comparable.

Let's say you have a tax debt of 1m, and your choice is to take out a 1m net dividend. Now you have to pay dividend tax.

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.

Ah, ok. But how many illiquid companies pay out dividends though?

The real alternative is to not tax illiquid wealth.

> Ah, ok. But how many illiquid companies pay out dividends though?

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.

The funniest part about Norway rising the wealth tax rate so extremly is that bow revenue from that tax drastically fell. I guess they need to read up on the Laffer curve. The second funniest thing is that a huge chunk of rich norwegiens left for Switzerland a country, one of very few, that also has wealth taxation on all assets. The difference is only that its an order of magnitude lower.

The references to Atlas Shrugged and the trains not running on time, and the bit about healthcare costs do not bolster any argument against a tax on unrealized gains, so this comes off more as ideologically motivated bit, rather than than an argument against the specific tax. Taxing unrealized gains is really problematic, as anyone in the startup scene who's been granted stock options in a rising startup in Silicon Valley can attest to. Paying a million dollars to the IRS because of AMT means you got a big payday, except for the fact that if you don't actually have a million dollars, you then have a problem. Most people don't have a million dollars to begin with so you can't pay that bill and you take a loan from sketchy loan shark, whole repeating the mantra, 100% of $0 is $0. 70% of a big number is still a big number.

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.

Taxing unrealized gains in a blanket way is bad but a more targeted threshold, such as taxing them when used in loan arrangements in which someone borrows against their holdings to avoid paying taxes on realizing the gains, seems like it would achieve the spirit of such a tax

Taxing people for going into debt certainly an... interesting idea.

That’s not it. That’s too general.

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

I've tried to get people to explain to me how this works and I have yet to hear a answer that doesn't end with, paying far more in interest than one would have paid in long-term capital gains or needing to die a few years after the loans to prevent that - or having to sell stock in order to make payments thus paying not only interest, but also capital gains tax.

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.

So called Buy Borrow Die strategies are one way[0][1]. Another (and this is what I’m referring to) is leveraging SBLOC[2][3], USLOC, HELOC and alternative asset type loans to borrow against their assets without tax consequences. These loans are made at below market rates of interest more often than not as well. They’re not paying 7.25% on these loans. Yes, banks are willing to take a potential loss on these loans to service the broader financial need of these clients. Particularly if they bring their corporate or investment vehicle business with them.

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...

> They’re not paying 7.25% on those loan

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.

If you want to know what they’re paying interest rate wise you aren’t going online to find it. We are talking about private bankers and exclusive preferred lender terms. These do go below (sometimes far below) market rates.

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

I gave example for a $10 million line of credit. The assets required for that it is $50 million.

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.

What you describe in your last paragraph and what I’m describing are actually very very different things.

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

Ironically Norway does the opposite - there's quite generous deductions for interest from taxable income in Norway.

The tax bill for ~$10m is <$90k. You don't need to take a loan from a sketchy loan shark - if you're remotely aware of this issue, you structure your investment agreements to account for lending you the money, and now you're taxed on commercial interest rates for it only, until there's a liquidity event.

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.

Please note that the main criticism in the Norwegian debate is currently how this kind of taxation discriminates Norwegian ownership and gives a disadvantage in terms of competition, in comparison to foreign business owners

Here's a thought: as long as some countries somewhere have enough freedom to innovate, and entrepreneurs can leave their countries and get to the freer ones, countries like Norway can piggyback off all the innovation from others (or outsource it). I think it would only be a problem if for some reason there was technology that couldn't be copied.

How will they pay for that technology they need to import when the oil ends? They'd need to barter something for something else.

How will any oil-dependent finances deal with the end of oil? By saving and diversifying. Norway's got the savings down good, and in a few decades they should start thinking about diversifying. Until then, they're in a great position because they didn't spend all their oil money on weapons and instead put it into savings for their people.

It’s not surprising, but I don’t think people of Norway care about entrepreneurs so it doesn’t matter.

Not surprising that an Atlas Shrugged reading entrepreneur dislikes taxation.

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.

[0] https://www.oecdbetterlifeindex.org/countries/norway/

Careful, did you pay him the three dollars it costs to quote his text?!

Does Norway perform well in various well-being metrics essentially because Norway is extremely oil rich?

(I don't pretend to know the answer, and ask because I don't see how to figure that out)

Yes, they're just a petrostate. Over half their economy is oil and mining.

they separate out oil activities in their national accounts. “Mainland Norway” GDP is also not bad compared to neighboring countries.

although it doesn’t measure indirect effects of oil wealth on other sectors. but still, “petrostate” isn’t really accurate.

It's a good question. If that were the case, I would have expected to also see other oil rich countries at the top of those rankings.

Norway is uniquely located among those, though.

It’s uniqueness is more how they manage their petrol dollars through a government investment fund rather than subsidizing government services directly or giving back the money to buy popular support like you see in Alaska.

Yes, well managed indeed! Far superior to what the Canadians did with their oil wealth. The Norwegians negotiated a good price for their oil. The Canadians practically gave it away. https://thetyee.ca/Series/2012/08/01/Norway-Petro-Wealth-Ser...

For a small country with that much oil money, "better than average" is a pretty low standard.

I have lived in Norway for a year and it’s definitely not as bright as you’re painting it.

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.

They left because they didn't want to pay taxes. No monkeying about, they want to be rich and tax free.

How do you pay taxes for something that doesn't exist with money you do not have?

I think the rationale is that if you have unrealized gains, there is a high likelihood that you are well off, and can therefore be pressured into reifying your economic potential into a resource that the government can appropriate (ie money)

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 a nice way to preserve feudal classes. It'd be just terrible if someone not rich attempted startups.

I don’t support these kinds of taxes but I think that is also a little hyperbolic.

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.

No, it substantially negatively affects people who don't have any capital. People who do can deal with it.

Having started companies in Norway without being rich at the time, it's not generally remotely a problem. The wealth tax is low, and it only kicks in over a threshold. If you can't afford to have your company pay you enough or lend you money to cover the wealth tax at the point where it starts to become a challenge, then your company is likely a shitty investment.

There can be extreme corner cases where it's a challenge, but it's extremely rare.

It makes zero sense when you consider that the stock market is how most people save for retirement.

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.

In Canada we have two types of nonstandard tax accounts, an RRSP and a TFSA.

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…

In the U.S. those are 401K and a Roth IRA. Both have contribution limits low enough to make them not enough to retire on.

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.

I think the issue that these laws are trying to solve (and perhaps not with sufficient nuance) is that the ultra-rich get paid in stock or options, which then go up in value. Those "unrealized gains" aren't taxable (because they're only theoretical at this point), but they're still able to go to the banks and borrow against those gains anyway to fund their lifestyle tax-free.

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.

Don't forget that Norway banned Life of Brian and people had to travel to Sweden to watch it.

While I like to tell that story too (it was supposedly advertised in Sweden as "so funny it was banned in Norway"), it was not technically banned. It was not given a certificate, so it couldn't be shown in public cinemas, due to concern it might breach the blasphemy laws, at a point where Norway was still fairly religious.

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").

Not even Swedes are so petty that they keep bringing that up dude. You are better of mentioning they raised the worst terrorist in the Nordics!

He's not "painting" a picture. He's citing statistics. You've countered with an anecdote.

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.

Statistics is exactly how people paint. Surely you’ve heard “there’s, damn lies, and statistics”?

Alcohol is so expensive as a choice with broad political support in Norway. Yes, Norwegians like to whine about it, and go to Sweden or Denmark to avoid it, yet Norwegians also keep voting for the parties (almost all) that agree with keeping alcohol taxes high.

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.

Everyone starts a company with the idea it may never apply to them, so why worry about it before it becomes a problem.

Of course, with the leaving tax, they may just move abroad before doing anything.

It was not that it didn't apply to me. I've had shareholdings in Norwegian companies worth well over the deductible several times. The point is that it isn't a problem in practice as long as you're aware of it and plan accordingly. Yes, if you start a company in Norway without a liquid market for your shares, and without understanding the tax implications, you might end up having a bad time of it. If you spend an hour talking to an accountant beforehand, it's just a minor extra cost of doing business.

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.

In accounting terms I guess the tax burden just decreases the NPV of all assets.

> 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.

Of course it's not fun to have to pay. At the same time the vast majority of the wealth tax is paid by a vanishingly small proportion of society that mostly pay extremely little in income tax despite being some of the richest people in the country. It's effectively largely plugging a loophole.

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.

Anyone that gets taxed more than they have money to pay is inclined to dislike that taxation. I completely agree with the wish to not cannibalize hour company before it’s even properly profitable.

They’re ‘unrealized gains’ for a reason.

That said, I also feel there is a way to do this tax properly.

> They’re ‘unrealized gains’ for a reason

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?

Maybe don't allow unrealized gains to be used as collateral for borrowing?

I am inclined to agree with your suggestion and agree with OP.

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.

Is a man not entitled to the unrealized sweat of his brow?

Holy shit, this blog tries to sell me the the right to highlight text!

This gotta be the most extreme instance of NFT brain I've ever encountered...

You misunderstand. You pay to "collect this highlight to permanently own it", not just highlight it.

It's hilariously self-defeating how I'm encountering this """"feature"""" for the first time on an article complaining about taxation. Like, you might have done a better job convincing me of the evils of government, if it wasn't directly alongside your vision of an ultra-capitalist nightmare hellscape where I have to pay to highlight text!

I’m okay with taxes on unrealized gains if I can get money from unrealized losses (and not just tax credits).

Is this satirical? If it is, well done you could've fooled me with the whole Norwegian perspective. If it isn't, damn how much of a caricature can you be.

If you ask a socialist to describe their ideal world, it is one in which everyone is equally poor.

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.

If you build strawmen it's easy to knock them down.

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.

And yet socialist countries starved millions, and their only periods of relative prosperity were when they loosened their ideology and allowed limited market reforms.

easy, impose an exit tax. capital doesn't need to be free when it's trying to evade justice.

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.

You do realise they were taxing the entrepreneurs before their companies made a profit? What sort of "justice" is that?

Anybody earning a wage pays tax on revenue, not profit. Property taxes can be even be on value, not revenue or profit. For any given tax burden, I don't see the "justice" problem by shifting more of that towards value and revenue and less towards profit. You could argue that in a vacuum that it is more just because it slightly incentivized investment over saving. And I'm sure you could argue the reverse too.

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?

> Anybody earning a wage pays tax on revenue, not profit

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.

Those deduction in no way change the basics of income (and sales) tax, which is on revenue, not profit. A person that has a good wage will pay a significant amount in tax even if at the end of a year they have no more wealth than before it; i.e. no profit. And while of course there _exist_ places that don't work this way or don't tax real estate that doesn't diminish the fact that there exist places that _do_ work this way - which demonstrates the fact that there's no broad agreement that taxation must be limited to and occur after profits. Norwegian self-proclaimed entrepreneurs aren't unique in their "victimhood", which seems to be the angle of the original article.

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.

> Norway imposes a wealth tax that taxes unrealized gains at approximately 1% annually. Calculated on the full market value for publicly traded assets and the book value of private companies. On New Year's Eve, whatever your net worth - including illiquid assets - is subject to this tax. It doesn't matter if you're running a loss-making startup with no cash flow, if your investments have tanked after the valuation date, or even if your company has gone bankrupt—you still owe the tax.

"unrealised gains". gains, not losses.

Do they give a tax refund if the assets then lose (notional) value the next year?

Yes, well credit and other mechanisms keep the ledger balanced. Do you think you're the first person who thought of that criticism or that none of the economics professionals though to address it? What arrogance.

Yikes. I'm interested to see how it handles that. The risk aspect is one reason capital gains are taxed at a lower rate than regular income. I guess it's not a tax on gains per se but specifically a wealth tax.

I'm okay with a wealth tax if it stops the runaway growth of wealth inequality.

in many places you can claim the last few years worth of losses as offset on your profits before taxes.

You can avoid profit indefinitely - just ask uber. That's if we're sticking to the customary definition of "profit".

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.

It's amazing to me that on a startup-oriented forum like this one you see these kinds of socialist comments when it comes to something that is harmful to startup founders and the entire ecosystem. Honestly curious to see what people who are hostile to entrepreneurship are even doing here.

It’s amazing to me that people think this is what socialism is. This isn’t seizing the means of production.

Wouldn't that be more communism than socialism?

The unpolluted definition of socialism is about public (e.g. social) ownership of the means of production. Technically, it’s not mutually exclusive of market systems, simply that participants are socially owned in some form. To be more specific about what I said, the roots of socialism called for the “seizing of the means of production” if governments and capital would not voluntarily convert to some form of social ownership

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.

I agree with and appreciate your comment, but I do think there is some validity in the more broad usage of "socialism" that has come to be. To steel man the other sides argument, if you have to pay taxes on an asset, be that the means of production or real estate, or else the government will come and take it away from you, it feels more like renting than owning, and the only thing you "own" is the right to pay rent on the governments asset.

I do definitely think that just labeling every government overreach that one dislikes as "socialism" is not the most useful.

I do think we need some disambiguation of things.

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

Very nicely put.

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’m not sure why you think a wealth tax is related to entrepreneurship ship. I get that you’ll find a lot of people who like the author don’t want to pay taxes, but you’re going to find quite a lot who do. Especially here in Scandinavia. Of course it’s less of a problem when you have a non-crypto product which actually makes money or gives you the opportunity to take out a loan based on your assets.

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.

The article mentions the existence of such a tax.

Norway already has an exit tax which levies a 37.84% tax on unrealized gains.

The "easy fix" isn't working for some reason. Perhaps a one-time tax is still preferable to an ongoing one.

you can also do what America does, if you're a citizen, you get taxed on your gains worldwide.

Law != justice.

Else, you won't have the concept of unjust laws.

any law I agree with is justice though, almost by definition.

Reply on news.ycombinator.com