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Taxing unrealized gains has caused an entrepreneurial exodus in Norway

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Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#51

Post by jltsiren »

freefaler wrote: post #25

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…

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.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#52

Post by freefaler »

skobes wrote: post #38
freefaler wrote: post #25

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…

> 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".

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#53

Post by dzhiurgis »

skobes wrote: post #38
freefaler wrote: post #25

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…

> 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.

Yes and property taxes are terrible.

Tax. Vacant. Land.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#54

Post by vidarh »

ivanche wrote: post #23
bryanlarsen wrote: post #3

> 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…

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.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#55

Post by msoad »

mediaman wrote: post #26

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 (…

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

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#56

Post by no_wizard »

Aloisius wrote: post #49
no_wizard wrote: post #14

Earlier quoted context omitted.

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

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#57

Post by vidarh »

mediaman wrote: post #26

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 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.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#58

Post by currymj »

mediaman wrote: post #29
jjtheblunt wrote: post #20

Earlier quoted context omitted.

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.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#59

Post by seryoiupfurds »

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.

Re: Taxing unrealized gains has caused an entrepreneurial exodus in Norway

#60

Post by vidarh »

freefaler wrote: post #25

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…

> 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.

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