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Super-rich abandoning Norway at record rate as wealth tax rises slightly – flood moving abroad has come as a shock and is costing tens of millions in lost tax receipts
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- Authors
- Rupert Neate
- Published
- Apr 10 2023
- Word count
- 715 words
What's the solution here? I know the USA doesn't really care where you are, you get to pay taxes anyway. Why is a Norwegian billionaire avoiding taxes on the wealth they extracted from Norway simply by taking a plane to some other country?
Seems like there are two (three) solutions:
Secret option three
Reduce the taxes on the ultra-wealthy and apologize to them because obviously you forgot the world is a capitalist plutocracy hellscape.
Option four: a progressive consumption tax. That $10 million dollar Cessna Citation now costs $14.5 million, because it’s taxed at 50% (for purchases of over $1 million). The HNW folks will still buy them, but paying more in taxes in the process.
If moving to another country is a non-issue, I don't see how buying a plane/yacht in another country to avoid taxes would be that difficult.
Moving to another country sure, but if you are staying in Norway, it becomes harder to get around the taxes.
I mean there’s another option, right? Just take their stuff? I think a prior generation said something like seize the means of production…
I’m not sure that’s went very well historically.
There is not that much "stuff" it mostly exists on paper. All the "stuff" of tangible value is manufacturing and logistical capacity that's just nodes in a distributed, trans-continental supply chain.
Well, you were asking here if this was a thing that could actually happen or if it was just a theory. Now we see that it's a thing :p
The US "expat tax" is awful IMO and one of those things where the US is extremely regressive.
Keep in mind that when writing these laws, they're on the books for decades, centuries sometimes. You're not just playing with numbers trying to justify an invoice someone can't weasel out of; you're doing something that will affect people in the future. This means the decisions you take have implications on how people will treat your country as an investment.
You see it everywhere: Weird-ass (usually tax) laws that tried to just get money out of some now-trendy-thing, that are now destroying the market because a neighbouring country played smart and is now a world leader in that thing and they employ 80% of people working on it worldwide.
Hollywood was a LA tax dodge.
So what's the alternative then? Just not tax them fairly because they'll take their toys elsewhere if you don't? That only works for so long and being a world leader in something isn't great if there is no tax benefit to the country for it. See Bangladesh where 85% of their exports are from their clothing sweatshops.
How so?
I'm not defending Norway's move FWIW. I don't think the ultra-billionnaire are a class countries should cater to. Primarily because it's such a capricious and rare class. It's like putting a bunch of very fragile eggs in one basket.
Just pointing out that it /does/ happen.
Honestly I think taxes on ultra-billionnaires is attacking the problem at the wrong end. It's like trying to get rid of a parasite that's already got hooks into all your critical organs. What countries need to do is establish structures that prevent such extreme levels of runaway wealth accrual in the first place. That means a strong social safety net and organized labor so workers can negotiate and transact to secure a higher share of the products of their labor. It also means general tax code adjustments to shift tax incidence to unearned (investments, rent, capital gains) income rather than earned income. Right now we're structured to incentivize risk-taking by having investments taxed so low, but incentivizing risk means you get a winner-take-all economy. The ones whose risks pay-off get everything and everyone else gets fucked.
Plus, incentivizing risk also means incentivizing fragility. Particularily when the risk doesn't an out and losses are mitigated rather than absorbed by the risktakers. In that vein, I'm somewhat skeptical of the way LLCs work in practice.
This does not bode well for things people expect to be stable.
To some extent I don't think it's worthwhile to try to tax stock values mark-to-market, and honestly from a broad policy point of view I don't think equity-based billionaires are that much of a problem. What you really don't want is a bunch of resources to be unused - if someone is a billionaire based off of equity value, their money is by definition "at work", so to speak. The net worth value is really quite misleading.
That doesn't mean that there isn't ways to liquidate equity assets or that billionaires don't live lavish lifestyles. It's just on the order of millions in cash flow, not billions in cash flow. And that's where the taxes should aim, on the other side of that liquidation. Trying to tax at the point of liquidation has in practice proven to be a difficult game of whack-a-mole, so I think it should be at the point of consumption. In the end, that's what personal wealth for humans is spent on; nice places to live, nice things to eat, nice things to own. The difficulty there is tracking purchases. Given the jump in digital payments, it may be more possible to implement something like a progressive sales tax.
Either way, it's a difficult problem. And it's not merely an ideological one either - the problem France had when they tried before, and Norway will as well, is that Norway, y'know, wanted more tax revenue for things they want to do, and they're ending up with less tax revenue.
There's some major challenges associated with a singular land tax, (land valuation, transition from income/consumption tax base, transition from existing city layouts that are in part based on long term assessments of current tax schemes) but the end result handles all these cases so well I have a hard time seeing how we don't end up there one day.
Want to be a paper billionaire and live in the metaverse in a hut in rural Oklahoma and pay essentially no taxes? That's a net benefit to society so go ahead.
Want to live a lavish lifestyle with multiple vacation properties in hot destinations? Get ready to pay through the nose for it.
You can't obscure land, or hide it away in offshore accounts. You can't take it with you, so there's no 'take my ball and go home' threats. If you want to sell your property and leave that's perfectly acceptable for the people staying behind.
Assuming inequality is something you care about, being able to defer capital gains indefinitely does seem like a problem, though? Eventually it turns into inheritance.
But I'm also not sure taxing consumption, income, or ownership get at the power associated with control over money. Controlling how a large pot of money gets spent (or not spent) is powerful even if you don't technically own any of the money. Consider someone like Robert Moses back in the day. Whoever controls an organization controls its spending, at least to some extent. The control could be over government, business, or charity spending. There are typically restrictions and a duty to only spend it in certain ways, but it's still power.
Though, there are also a lot of pro-social things that can be done by controlling spending. This is the justification for government spending when it works, and I think it applies to other organizations as well.
Whoever inherits the wealth still needs to liquidate it to actually use it. Unlike a pot of gold in the basement, if the equity isn't liquidated, then it's not actually money the person has, it's money doing something.
It doesn't, but that's a much harder, arguably intractable problem, that other forms of taxation also do not particularly get at. Nor is it congruent these days to the amount or value of the equity you hold. Zuckerberg could give up the vast majority of his equity, and he'd still have more power than someone with more money but in ETFs or something, because he has a set of super special shares that allow him to have absolute control over a 500b company regardless of how much $$$ equity he owns of the company.
For capital gains taxes, the cost basis is pretty important and when that gets reset for inherited wealth, the tax doesn't get paid at all.
Arguably, inherited wealth should be regular income (since you got it for free) but that's not how it works.
It's not that simple. You have to live at least 3 years abroad for Norwegian taxes to no longer apply. Living there implies more than a short hop on a private jet. You can't be in Norway more than 61 days each year or the 3-year count gets reset. You, your spouse or children can't own or have the legal right to use any livable property in Norway. You also have to pay an "exit tax" if you realize capital gains made in Norway less than 5 years after moving (this is a hole in the tax code that the government is looking to close, making it harder to avoid the exit tax by just waiting a few years before realizing gains).
However, to further complicate matters, Norway has bilateral agreements with a number of countries that modify the general tax rules. Switzerland is popular because not only is it a tax haven, but Norway has an agreement whereby wealth taxes (but not necessarily other taxes) are immediately transferred from Norwegian to Swiss jurisdiction the day you move, not three years later. I'm actually unsure what exactly Norway gains from this agreement. Wouldn't surprise me if the deal involves a quid pro quo where Norway gains something else in a completely different area of jurisdiction. I'm not a lawyer.
However, the general idea is probably something like this: Norway wants to be able to tax foreign nationals who live in Norway. In order to gain that right, while avoiding double taxation which would strongly discourage wealthy foreigners from ever moving to Norway, we have to give up the right to tax people who emigrate.
The US is so powerful that it can get away with a lot more than a tiny country like Norway. It's in a much stronger position to negotiate bilateral agreements.
Realistically it’ll be difficult to do with how the Schengen area is constructed currently. Without a stronger centralized European government that can enforce broad tax policies, there’s not much stopping people from residing in EU countries with low taxes and conveniently spending time as they are legally right to do in other Schengen countries.
It’ll probably end up like the failed French wealth tax where a bunch more leave and the government is spooked and they quietly roll it back.
I don't know of a general solution, but property taxes don't have this problem because the property can't move. It doesn't matter where the owner lives.
(Compare with ships, which can be registered anywhere, so it's often Panama or Liberia.)
Harmonise tax rates in large political blocs that the rich can't feasibly avoid. If the big economic powers can cooperate on that one point, they all see their tax revenue go up. A race to the bottom competing for rich person tax money isn't going to be good for anyone long term.
Seems like one of those things that will have to happen eventually and the longer we wait the harder it'll be: look at the leverage they exercise now because of the wealth they've accumulated, and as do they can push their own taxes downward, accumulating even more wealth.