I guess I'm in the weird position of being a leftist who is generally against wealth taxes. Taxing non-liquid wealth like this requires the government to be able to accurately assess the value of these assets and that's an unrealistic burden IMO. I would rather address the "Buy, Borrow, Die" paradigm from other angles, like restricting the classes of assets one can borrow money against to force liquidation and therefore be subject to a traditional capital gains tax instead. That way the market takes care of the problem of pricing the asset and society can impose a tax on that valuation.
> Taxing non-liquid wealth… I would rather address the "Buy, Borrow, Die" paradigm… like restricting the classes of assets one can borrow money against to force liquidation
The point is that to justify the concentration of capital, the company should be doing well enough to tank the tax. If they can borrow money against the equity then that gives them liquidity, and they can use it to pay a wealth tax; and if they can't repay the loan (presumably because their equity didn't appreciate to a point where they could re-negotiate the loan terms) then there's your forced liquidity.
> The point is that to justify the concentration of capital
Why does that need additional justification, beyond investor confidence? And why does "justification" take the form of paying money? That's not any kind of moral justification, it's just an indulgence.
> the company should be doing well enough to tank the tax.
Saying it should be doing well enough now to tank a tax based on estimated future earnings requires that a lot of otherwise unnecessary assumptions about access to financing and revenue timelines hold.
It's all just throwing a bunch of extra stress at entrepreneurs when they're most vulnerable, instead of waiting for when their labors bear fruit. Since the state is extremely able to endure that wait, it all just comes across as malice.
> Why does that need additional justification, beyond investor confidence?
Because capital that's in one place is not capital moving around the economy.
> And why does "justification" take the form of paying money?
That's not what I said. Justification takes the form of superior return (which makes it possible to pay the tax and remain ahead). The return shows that it's fine to leave the capital in place, because it's empowering a successful venture.
I see your point, but in this scenario how do you handle the problem of levying an accurate tax? I suppose we could rely on banks to value assets instead of the government, but since the banks are the ones giving out the loans to pay the tax this feels a bit circular
Banks are actually pretty good at valuing assets. They don't want to overvalue because that's their collateral. And lowballing will make the borrower choose another bank.
Most modern wealth alternative-minimum tax proposals allow individuals to effectively give the taxed percentage of the difficult to value asset to the state to be converted to a tax payment upon a liquidation event.
This is being used as a corner case to thwart wealth taxes that in the vast majority of cases involve well valued, liquid, publicly traded securities.
So what's the point of taxing unrealized gains specifically? Why not wait until the gains are realized, tax them then, and still collect on average the same tax income? This would result in the same yearly tax income for the government, except in the years immediately after implementing or increasing unrealized gains taxes.
Is it just to force entrepreneurs to sell more stock and get more loans, as a gift to the financial sector?
Edit: On second thought, taxing unrealized gains results in lower tax income - the financial sector will take its cut, and that cut has to come from somewhere.
Europe is a retirement home rigged to favor old people and old money. The thought that you could save on your own and enjoy compound interest is forbidden.
> They took an investment of 70M at a valuation of 1000M, in a country that has a well-known 1% tax of valuation, but they failed to write payment of that tax into the funding papers and fled the country to dodge a 10M annual tax bill.
The tax bill is 10M only if they control 100% of the shares. Given that they've taken funding from at least 15 investors/VCs, this is clearly not the case.
Because many of the wealthiest individuals de facto realize their gains in the form of collateral for loans that allow them to live without ever realizing their gains from the perspective of the tax code. If you do well enough, you never have to pay taxes on stock holdings.
The very first sentence of TFA gives it away:
Recently, my story as a Norwegian entrepreneur facing an unrealized gains wealth tax bill many times higher than my net income went viral
Many who are in the position to control how their compensation is doled out (board members, C-level) will often take it exclusively (or nearly so) in stock, specifically so they never have to pay taxes on it. Famously, several have taken $1/year incomes - e.g., Mark Zuckerberg and Steve Jobs, while Elon Musk didn't even bother with the charade and took $0/year.
* Side bonus: in the US, corporations paying out performance-based compensation like stock get additional tax breaks, so it's not just the executives which win the taxation game while doing this.
> de facto realize their gains in the form of collateral for loans that allow them to live without ever realizing their gains from the perspective of the tax code.
Can you explain how this works? I have my wealth in stocks, I use those stocks as collateral for a loan. To pay back this loan, I have to either get money from somewhere, or hand over the collateral to the bank. Let's say "get money from somewhere" is taxed (to avoid circular reasoning), so that leaves trade loan collateral for loan cash, which is on net no different than selling the stocks.
This is not taxed? And wouldn't it be infinitely easier to close that loophole, than taxing the estimated profit for the next N years, which is what unrealized gains tax amounts to?
Take out another (slightly larger) loan against the stock. As long as the stock grows faster than the interest rate, you should be able to chain loans together forever. You need to only borrow a portion of the value of the collateral to provide a buffer from volatility, but that should also mean the loan is very safe and thus at a low interest rate.
To close the loophole you would need to be able to tax borrowed money which creates its own set of dangers.
Another way to close the loophole would be to amend the tax code to realize the gains for any stock used as collateral, since the person obtaining the loan is already de facto realizing the gains for the sake of the loan.
What all these people fail to mention is that at about the same time as the increase in wealth tax, another tax rule was made stricter. Before nov. 29 2022, you could take your unrealized profits abroad for five years to reset your cost basis for the realized gains tax. Meaning you could essentially spend five years to get rid of your tax burden. This tax amount is significantly larger than the wealth tax. And many of these 100 people moved before that.
Is the Norwegian government’s theory that a modern company might never realize their gains, and avoid taxation indefinitely, and thus this is a forcing mechanism to extract some tax revenue?
That’s an accurate description of the majority of VC investment outcomes. The outlier-success stories aren’t called unicorns because they’re common. So it tracks that Norway would tax valuations to curtail investments that generate no economic value for Norway (such as a typical forever-profitless business in round G with no profits to tax) and promote investments that generate economic value for Norway (such as a typical profitable business with profits to tax) — and if the VC gamblers want to gamble in Norway, their claimed valuations are taken at face value and taxed accordingly, which provides a direct financial incentive against valuation inflation.
That round G company with negative cashflow is probably employing people, buying goods and services, etc all within Norway. To say it's not generating economic value is disingenuous at best.
What % of their annual spend goes to foreign clouds? For most unicorns that would be their largest or second-largest cost, since unicorns, by design, tend to be focused on growth engines that scale up users without scaling up headcount. Taking 1% of a VC startup’s headcount is almost nothing relative to the money left on the table from 1% of their cloud costs. A sensible startup wouldn’t necessarily fit this description, but those are out of scope — this post is focused on unicorns, so that’s my focus as well.
I don't know how a company could avoid all taxes. They say that Amazon does, but that's only the corporate income tax, surely they are paying billions in payroll, property, energy, and other taxes.
All the examples you gave are cost cutting targets that any competent manager will do their best (worst) to minimize, except properties. Those appreciate over time a lot more than taxes are worth.
Stop throwing subsidies. Easy fix without a wealth tax.
There are a plethora of taxes that companies pay, but a tax on existence is just awful in so many ways. Make zero dollars this year? You lose a percent of the company -- congrats.
There is a middle ground: Make using the securities of the company as collateral a taxable event. If it's good enough to back a loan, it's wealth, realized.
The wealth tax targets millionaires who structure their income so they don't pay income or corporate tax, but can't avoid owning assets like company shares and property. Loss-making startups with unicorn level valuations are a tiny edge case.
I'd much rather there be a pre-tax on loans rather than a wealth tax to prevent premature liquidation. The former makes sense: if you borrow money, you should pre-pay the tax you would pay once you pay off the loan, or at least some fixed minimum percent that can raised or lower at the time the loan is paid off. And get rid of the stupid step up in basis on death.
A wealth tax on unrealized assets is going to create huge distortions in the economy, there are other ways we can fix this.
When your application to defer the tax is granted, payment is deferred for three years. Once the three years have passed, you'll receive an invoice stating the amount that you owe, including interest.
So, let me see if I understand this right: They took an investment of 70M at a valuation of 1000M, in a country that has a well-known 1% tax of valuation, but they failed to write payment of that tax into the funding papers and fled the country to dodge a 10M annual tax bill.
To their complaint: Norway is exceedingly hostile to investments that do not result in Norwegian economic investment beyond the borders of a given business. The 1% tax on virtual wealth is explicitly targeting theoretical unicorns to ensure that VC funding is taxed. Here, the first year’s effective tax would have been 10M owed out of 70M invested, at 14%. Whether that’s excessive or not for an investment is worth discussing in the context of Norway’s normal corporate tax rate, 22-25%, which they do not do. I shouldn’t have had to do this math: their post, if it’s seriously intended to influence economic policy, should have at minimum laid out these figures.
To their emotions: Were they not consulting with an accountant and a lawyer when they accepted the investment? Did they knowingly accept the investment and begin planning their exit from the country immediately? Is this a planned marketing campaign that uses taxation outrage to generate free PR for their company among taxation-hostile audiences that are more likely to pay a cryptocoin investment product?
Given the data-free post and the apparent naïveté of their founder when faced with investment and taxation in Norway, when the focus of the business on providing investment advice — either this business deserves to collapse due to its founder’s incompetence, or this post is a honeypot trap for extracting PR wealth from the cryptocoin faithful. The post presents no new arguments against Norway’s valuation tax that weren’t already hashed out at length when it was first imposed, so I decline to give them free PR by engaging with their outrage.
ps. While I largely disagree with Rand’s views, I am not unfamiliar with them. The implicit but unstated framing of their cryptocoin investor product as a peer of Reardon steel or Taggart Transcontinental here is laughable. No product is produced that stands above and apart from its peers, Rand would label their target customers as ‘moochers’, and their post is a coarse mockery of the impassioned monologues of Atlas. Their flight to Switzerland is no silent quitter abandonment of their enterprise, and they certainly would not be invited to the Gulch before the collapse.
> Norway's entrepreneurs are now indeed disappearing from society. In the past two years alone, a staggering 100 of Norway's top 400 taxpayers, representing about 50% of that group's wealth, have fled the country to protect their businesses.
This sounds like amazing success. Now no one has to worry about those people using their money to command Norway's significant resources to implement their stupid ideas. Money is not a resource. It's IOU from the society to the guy with money. Pushing the rich out of the country is letting someone else pay for those IOUs with their work and resources.
If you think it's a loss because those people might have great ideas because they got some in the past that made them rich, it's usually not the case. To land on the very top you need very significant amount of luck. And luck is something that you get case by case. So they have about as good ideas as next 10000 people that didn't have as much luck. But the blast radius of the stupid ideas of those on the very top is huge because of how much money they accumulated. Pushing them out of the country is a huge benefit.
> all employers in Norway will eventually become foreign companies.
> How is that a benefit?
If they employ people in Norway you can tax them on that. If they sell in Norway products or services you can tax them on that. If they purchase infrastructure you can tax them on that. If they own any infrastructure in Norway you can tax the ownership. If they rent anything, you can tax renting. If they borrow Norwegian money, you can tax that. If they lend to Norwegians you can tax that.
That's a lot of benefit. Pretty much all of the benefit of hosting any company, domestic or foreign in Norway if you don't tax the capital itself.
What you can't tax the companies on is profit because it's trivially concealable.
It's even better if they are foreign as they have lower political capital because they can't cry their tears out to the Norwegians to have lower taxes.
Pushing rich people out of the country and taxing them along the way is the best thing that might happen. And the money collected can be reinvested into infrastructure and consumers so that foreign companies have a reason to do stuff there.
All the things you mention also apply if the company is Norwegian, and then you can also tax the profit. So there is no benefit here, only downsides.
By having this policy, the country not only loses all the money they could get from taxes once the company ACTUALLY makes money, but they also give control of the nation's future to foreign actors.
So this is quite obviously an extremely bad policy that is a net harm to everyone living in Norway. It leaves the nation and the citizens with less money, fewer resources and fewer options than if the policy had not existed. The policy has for sure already cost the nation several hundreds of billions in future taxes.
It is also morally wrong, of course.
Maybe you can understand why if you consider this: The policy is equivalent to taxing the unemployed because they might get employed one day in the future, and then demanding the payment before that happens.
Magazines all over the world talk about the wealth of business owners as if it is equivalent to the wealth of say sports stars or musicians, who get paid millions to their bank accounts.
Forbes and other finance magazines create top lists and bio stories presented entirely as if the valuations of businesses are the same as actual money. When Amazon shares go up or down a few percent overnight it's reported in the media as if a convoy of trucks has dumped dollar bills at Bezos' mansion. "Bezos made xx millions per minute".
Spreading such misinformation everywhere for decades can't be good, and it seems Norway has fallen victim to it.
How narcissistic do you have to be to come up with a title like this about yourself?
It reminds me of that study that found that people who serve in executive roles for prolonged periods of time develop a sort of brain damage where their "mirroring" neural process becomes impaired.
the author founded dune.com which is a crypto onchain data company. there is a focus on ethereum, solana, tron, stablecoins, prediction markets and the like.
the viral tweets critizing the wealth tax are by elon musk, marc andreessen, paul graham and alex svanevik (also an onchain data founder). certainly what they have in common here is that they would stand to lose some wealth from the wealth tax!
The other thing they have in common is building large scale organizations that do difficult things, bring value to millions of people and employ thousands
Invoking Atlas Shrugged and "the government is punishing the most productive, wealth-generating members of society!" when you run a shitcoin startup is hysterical. Musk is a scumbag but at least he builds real rockets and electric cars. The author of this article lets people arbitrage monkey JPEGs and has the gall to complain about being taxed on it.
TL;DR: Norway imposes a wealth tax that taxes unrealized gains at approximately 1% annually. "Wealth" here includes the book value of private companies, which presents cash flow problems for founders of startups with high paper valuations (like the author, who founded unicorn Dune Analytics).
I'm still finding it hard to be terribly sympathetic towards the author, and the constant Ayn Rand references don't help. If you're worth 100 million dollars on paper, is it really that hard to come up with 1 million to pay the taxman? Sell 1% of those shares, get a loan secured by those shares, etc.
Not to mention that the general findings from Norway's wealth tax is that it works. A few millionaire's leave but the benefit far outweighs the cost of some capital flight
I still prefer Warren's proposal in the US which only proposed a tax above a net worth of $50m. The biggest criticism of wealth taxes is the massively complicated added bureaucratic burden of measuring everyone's wealth. Only about 0.14% of USians have a net worth above $50m.
Thank goodness it’s $50 million because if it were a quarter of that then $174,000/year salaried senator Elizabeth Warren, worth $12 million, would be liable too.
> If she ever reaches that level of net worth, I highly doubt she'd have trouble paying a 2% tax on it.
The point is that politicians (and political influencers) have a habit of proposing thresholds for taxation on rich people that manage to stay above their own personal level of wealth (or income). It comes across as self-serving.
The thresholds should have some actual calculation behind them that doesn't appear motivated by the speaker's personal situation.
I understand your point and was responding directly. That is, I don't think you're point is supported.
The cutoff is far above what she makes. For her to pay anything significant she'd have to have a net worth well above $100m.
She also justifies the $50m explicitly. That is roughly the percentile where 0.1% of people would be affected. The other cutoff (where the tax goes up to 3%) is at $1b. That is where 0.05% of people are affected.
After looking at the posts here, are you being critical of those like it or those who can't get beyond hating it (and maybe discuss the actual point of the article)?
Let's revisit the very first sentence of the article.
> Recently, my story as a Norwegian entrepreneur facing an unrealized gains wealth tax bill many times higher than my net income went viral, amassing over 100 million views on X.
There's contributing to society, and there's receiving demands for more wealth than you possess. If you can't make a moral distinction between the two, then, frankly, I don't know how to explain it to you - this is one of those things that you should understand by the age of ten or so.
Good, productive wealth is expected to accumulate value over time, for example by being invested in someone else's equity or in a worthwhile business venture. If you're sitting on capital that isn't doing that, you've functionally taken it out of the economy, and a well-designed system punishes that.
Invested capital is not guaranteed to make returns within a tax year. Taxes on capital gains are morally right, but wait until the gain has been realised before levying the tax.
> Taxes on capital gains are morally right, but wait until the gain has been realised before levying the tax.
I tend towards your morality, but I would rather argue from a practical perspective.
My proposal is that we should levy tax on wealth when we can actually measure it. "Market capitalization" is largely illusory, but public stock markets make the per-share value real. As for private equity… well, it would be inappropriate to take some investor's implied valuation for granted, but neither should we allow multi-millionaires to hide all their wealth in a do-nothing corporation registered for a few hundred dollars and then claim to have no liquidity.
All this stuff about "resetting cost basis" encourages playing games, and those with the most resources will be best at dodging the taxes (the more complex the rules, the more so). My perspective on this is perhaps informed by living in Canada, where capital gains are grossed down rather than having the American distinction between "short-term" and "long-term" capital gains and complex rules about "wash sales" etc.
The teenagey reference to Atlas Shrugged, a book that hails selfishness as the highest human virtue, coupled with the sloppy writing makes me highly suspicious of the competence of the author. Good riddance for Norway I guess.
Sort of like how the medieval world relied on a small class of aristocratic landowners who loved riding fast horses and killing each other, the postmodern world relies on a small class of people from all walks of life who will work much harder than usual to make more money than they need, operating large enterprises to solve various material problems of other people that they don't really need to be solving, paying tax on those enterprises that they could otherwise avoid if the were not working so much.
Thats a real big difference in how socialists vs ryandian people view the world.
The Ayn Rand philosophy holds that the people at the top are working hundreds or thousands of times harder than the rest of us.
The modern socialist view is completely contradictory, where most of the people at the top are supposed to be doing even less than a construction worker, but they're rich because of the return on capital or the right to extract some sort of rent.
The problem with both views is it ignores lived experience.
Everyone knows people at the top get paid more, even in socialist/communist societies this is the case. Now whether this is because of birth privilege, good social connections, politicking, actual hard work. It's pretty well a constant that's held across time & differently structured societies. I guess what I'm trying to say here: there's always people jockeying for position. Pretending we're in some sort of utopia won't give the average person a good experience.
Second. While the hard work is most definitely over exaggerated, it's not uncommon that hard working people usually end up better off then not hard working people. There's also the saying/belief that people make their own luck. And I am firmly in the camp that luck, whether it's made on their own accord or blindly stumbled into, is a probably the biggest unspoken factor because it takes away from narratives of self-made etc.
This is an empirical question. 10 seconds of googling suggests CEOs work about 60 hours/week average: https://www.cnbc.com/2018/06/20/harvard-study-what-ceos-do-a... so harder than the average employee, but I'm not sure by what measure anyone believes they work 100x harder.
Perhaps the difference between a good CEO and a bad CEO is 100-1000000x the average worker's productivity, or even more. I suspect the real disagreement is: does that justify paying a CEO 10-100000x more than the average worker, even if they only work 1.5x as hard? From the perspective of a company it may be worthwhile, but I can see how some people might feel that's a little unfair.
Here's my solution:
Make being a billionaire illegal.
That's it. It's incumbent upon asset-holders to remain under the limit. It's up to them how close to the line they wish to tread.
No one becomes a billionaire ethically...no one produces that level of value, and absolutely no one needs that much money. And we have evidence that it literally breaks your brain when you attain that level of wealth. It's only possible to attain through exploitation. If you are found to hold a billion dollars in assets, you go to prison and forfeit all of your assets, so it's up to them to manage their assets accordingly. Give it away, pay your workers more, distribute it however you want, but a single person cannot be allowed to control that much capital - full-stop.
If you flee the country, any assets you leave behind are forfeit and seized. You will not be allowed to retain the wealth you accumulated on the on the backs of taxpayers and labourers...it will be forcefully redistributed for the public good.
For any country that does this, extreme wealth disparity will be eliminated. If there are countries that allow billionaires exploit the working class and public infrastructure, then they can go build their fortunes there. Equitable, civilised countries will outlaw it. Billionaires only exist because we allow them to.
Someone with less than a billion will be just fine, and can enjoy a reasonable, moderate amount of wealth in peace.
The blog author is the founder of a unicorn and thus (assuming they hold a controlling stake) a billionaire on paper. Should your sanctions apply, and how does that work when their only significant asset is the company shares?
It's unethical to make a million by controlling a drug someone needs to survive or bribing politicians. But it's not unethical to make a billion by writing a popular app, website, book, movie or performing songs.
So the amount is irrelevant, it's the actions that matters, when it comes to ethics.
You have no jurisdiction over other countries, so the country allowing billionaires will end up with the largest companies in any industry, and your small companies will not be competitive. Dystopian end to your country follows.
This isn't easy. Billionaires are often the result of the basic wealth creation of society, which we don't want to sabotage. Amazon employed thousands before Bezos became the richest guy in the US.
We want successful companies that employ thousands of people under good conditions. The more such companies the better, even if each of them creates a billionaire or two in the process.
I think we should allow people to become as wealthy as they can, but ensure that it has to happen through ethical methods. No corruption, rackets, cartels or other shenanigans. No matter how much money you have you can't buy any loopholes.
Of course easier said than done but I don't see another way that can possibly work out well.
>Perhaps by realizing a portion of the gains and handing over the resulting wealth?
That means the state forces you to sell your company if people start to believe in it. Why can't they instead tax you once you do realize the gains of your own free will?
You start a co and have a million shares. Some guy buys a share for a thousand bucks, which means you get classified as a billionaire.
Then the state says "Hey pay us ten million of that billion".
When you start to sell your shares, you discover that the first guy was insane and nobody wants your shares. That 1000 bucks is all you have.
And the state goes "Better borrow for that ten million you owe us"
Of course the normal situation is that a company makes money and shares don't collapse in value - but what I describe can 100% happen exactly like that.
It's a kafkaesque dystopian nightmare that should not be possible in a democracy IMO.
Sell to who? The company is loss-making. Investors WANT the founder to have shares so that the founder is invested in being the force behind making the company NOT loss-making.
Oh yeah that’s easy! Why didn’t he think of that earlier? /s
For those who don’t know, just because you have a valuable asset, e.g. stock in a private company, that does not necessarily mean you can sell it for cash. I’ve experienced this the hard way throughout my career
