[HN Gopher] Norway: Taxing Unrealized Gains Has Caused an Entrep...
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Norway: Taxing Unrealized Gains Has Caused an Entrepreneurial
Exodus
Author : koevet
Score : 52 points
Date : 2024-11-28 18:11 UTC (4 hours ago)
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| exe34 wrote:
| 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.
| HeckFeck wrote:
| You do realise they were taxing the entrepreneurs _before_
| their companies made a profit? What sort of "justice" is that?
| emn13 wrote:
| 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?
| exe34 wrote:
| > 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.
| HPsquared wrote:
| Do they give a tax refund if the assets then lose
| (notional) value the next year?
| kingstoned wrote:
| 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.
| no_wizard wrote:
| It's amazing to me that people think this is what socialism
| is. This isn't seizing the means of production.
| barbazoo wrote:
| Wouldn't that be more communism than socialism?
| no_wizard wrote:
| 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.
|
| 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.
|
| And no the USSR, North Korea or China have demonstrated
| that they have not implemented either of these economic
| (and in the case of communism also political)
| philosophies.
| devjab wrote:
| 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.
| occz wrote:
| The article mentions the existence of such a tax.
| Aloisius wrote:
| 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.
| bryanlarsen wrote:
| > 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.
| SiempreViernes wrote:
| 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.
| ivanche wrote:
| And how would they pay back a loan?
| jplrssn wrote:
| 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/
| SiempreViernes wrote:
| Careful, did you pay him the three dollars it costs to quote
| his text?!
| jjtheblunt wrote:
| 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)
| mediaman wrote:
| Yes, they're just a petrostate. Over half their economy is
| oil and mining.
| HPsquared wrote:
| For a small country with that much oil money, "better than
| average" is a pretty low standard.
| cbmuser wrote:
| 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.
| fragmede wrote:
| 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.
| no_wizard wrote:
| 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
| SiempreViernes wrote:
| 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...
| barbazoo wrote:
| You misunderstand. You pay to "collect this highlight to
| permanently own it", not just highlight it.
| DataDaoDe wrote:
| 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.
| freefaler wrote:
| How will they pay for that technology they need to import when
| the oil ends? They'd need to barter something for something
| else.
| freefaler wrote:
| 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.
| HPsquared wrote:
| The other thing is what happens when the notional value goes
| down a year later? Do they get a tax refund?
| freefaler wrote:
| At most you'd get a rebate of your future tax payment as is
| the current practice.
| novok wrote:
| 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.
| skobes wrote:
| > 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.
| mediaman wrote:
| 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.
| formerly_proven wrote:
| 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).
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