Posted on 06/26/2023 6:14:16 AM PDT by george76
In 2022 Norway’s third richest man, Kjell Inge Røkke, announced in an open letter to shareholders he was moving to Lugano, Switzerland.
“My capital will continue working in Norway,” wrote the fishing magnate turned industrialist who launched his empire four decades ago with a 69-foot trawler he bought while saving money working on ships off the coast of Alaska.
Røkke, who Forbes estimates has a fortune of $5.1 billion, will cost the Norwegian government an estimated 175,000,000 kroner annually (roughly $16 million) with his departure. That might not sound like a lot of money, but Røkke is not the only wealthy entrepreneur leaving Norway, The Guardian notes.
“More than 30 Norwegian billionaires and multimillionaires left Norway in 2022, according to research by the newspaper Dagens Naeringsliv,” reports wealth correspondent Rupert Neate. “This was more than the total number of super-rich people who left the country during the previous 13 years, [the paper] added.”
Did you catch that? More “super rich” Norwegians left Norway in 2022 than during the previous 13 years combined. The reason wealthy Norwegians are fleeing the country is not a secret.
Following its 2021 electoral victory, the Nordic nation’s Labor Party made good on its promise to soak the rich. Norway is one of just a handful of OECD countries that still taxes net wealth, and the Labor Party increased the country’s wealth tax to 1.1 percent despite warnings that such a move would “trigger capital flight and threaten job creation.”
Capital flight is exactly what happened, and it has left the Norwegian government with less revenue.
Norwegian Business School professor emeritus Ole Gjems-Onstad estimated that the wealthy Norwegians took with them a total fortune of $54 billion when they left. This means that the wealth tax, which was projected to increase revenue by nearly $150 million annually, will result in about 40 percent less revenue than it currently generates. Luca Dellanna, a management advisor and author, points out that Norway collected about $1.46 billion on its wealth tax in 2019. But the exodus of the wealthy will result in an estimated $594 million in lost revenue.
Those trying to understand how Norway’s policy could backfire so badly should look to the work of the late Nobel Prize-winning economist Robert Lucas. Lucas, a longtime professor at the University of Chicago, received the top prize in economics for research that became known as the Lucas Critique, which exposed various problems with macroeconomic modeling.
Lucas believed that to predict policy outcomes it was essential to first grasp that all action is individual behavior, and humans are rational creatures who will respond to policies in rational ways — even to policies designed to fool them.
“Microeconomics assumed people were rational,” economist David R. Henderson pointed out in a recent Wall Street Journal article following Lucas’s death. “Why shouldn’t macroeconomics make the same assumption?”
This insight helped Lucas win the Nobel Prize, and it helps explain why Norway’s wealth tax backfired so badly. It was always naive to assume wealthy individuals would continue to bear Norway’s wealth tax. After all, one needn’t have a PhD in economics to realize that wealthy people are unlikely to sit idly by as lawmakers take more and more of their wealth (not income, mind you, wealth). As early as the 17th century, Jean-Baptiste Colbert, the finance minister to France’s Louis XIV, observed the delicate nature of taxation.
“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing,” wrote Colbert.
Norwegian lawmakers forgot this simple lesson, and now they can do little but watch as the wealth creators in their country depart, taking with them their capital, ingenuity, and taxable income.
“Atlas shrugs in Norway,” observed economist Peter St Onge.
Indeed.
As it happens, Norway’s unfortunate lack of foresight comes at an opportune time for those living in the United States, where many are pushing wealth taxes.
Earlier this year, the Washington Post reported on the creative methods federal and state lawmakers are devising to separate “the rich” from their wealth. These include no fewer than four states attempting to tax unrealized capital gains, including a California proposal that would impose a 1.5 percent wealth tax (even higher than Norway’s).
“If it’s an annual wealth tax, it’s taking a fraction of your wealth every year,” Berkeley economist Emmanuel Saez, who helped design Sen. Elizabeth Warren’s wealth tax proposal, told the Post. “Almost by definition, you’re going to have less wealth after you pay the tax.”
If professor Saez believes California’s wealthiest people will allow lawmakers to tax their wealth and make them sell shares to cover unrealized capital gains, he hasn’t learned Colbert’s lesson on taxation.
Such a policy wouldn’t just result in a great deal of hissing. It would lead to a mass exodus of wealth creators. Anyone who doubts this need only look to Norway.
Everything old is new again. This happened in Sweden in the 1970s and continued into the early 1990s. Wealthy Swedes had to plan their escape because if they just left, the tax authority would come after them in their new countries. So they had to set up offshore trusts in places like Luxembourg years ahead of leaving and put all their wealth into the trusts. Sweden finally wised up and stopped. Norway apparently didn’t learn that lesson and took up what didn’t work for the Swedes.
They forgot to ban people from leaving the country and moving their money
The Law of Unintended Consequences.
Because stupidity and ignorance are contagious diseases of a Liberal mind.
We always copy the worst policies from other countries.
The Netherlands had this policy also. A friend of mine’s dad lost everything to the wealth tax. He was a retired machinist living modestly, but the wealth tax slowly eroded all of his savings leaving him broke. My friend came to the USA to escape this fate.
We all live in feudal societies. The names of kings and lords are replaced by parliaments and tax collectors.
Great Britain faced the same issue in the 1970’s during the “Brain Drain”. People fled to the Jersey Islands to take advantage of a loophole. The Brits closed the loophole and both human and financial capital left Great Britain altogether.
I did my dissertation research in England for 2 months in 1969. I became friends with a chemist (what we call pharmacist) and he was debating whether to buy his 5th store. He said that, if he did, it would put him into the Supertax bracket. As I recall, that kicked in on incomes of £30,000 and above. The pound was roughly $2.40 back then and on each pound over that amount, the gov’t took $2.38. He didn’t buy the store because it just wasn’t worth it. Tax policies distort the natural allocation of resources, often to less productive endeavors.
They still have not recovered.
Two words: Laffer Curve.
Likely so has Prince Harry...
Still wondering if he’s here on a visa that allows the Harkles to dodge income taxes...
It is impossible to productively tax wealth. Income, yes, real estate or tangible property, yes, consumption, yes, but wealth that can be converted into fungible money, will always be spirited away from the reach of the tax collector.
And corporations do not pay taxes. They collect them from their customers, clients, and patrons as a cost of doing business, and pass them through as part of the value of the goods and services they sell.
Which is why Commiefornia wants to charge refugees and exit tax.....kinda like the Nazis did with fleeing Jews.
“ They forgot to ban people from leaving the country and moving their money”
Bit of history, that’s exactly what the Nazis did to my grandparents.
They could leave, but had to leave everything behind as a special exit tax.
Leftists just being leftists.
Wealth tax equations, as believed by the left-thinking government officials, has only 2 sides to the equation:
Taxing the wealthy = more tax revenue for government to spend
While in reality...
Taxing the wealthy = more money leaving the country (or states) = less tax revenue for government to spend
Liberals don[t want to admit that the second part of the equation results in destroying their -tax-the-wealthy policies.
Another major fault with the tax-the-wealthy policy is...
when the wealthy have less money to spend or take it elsewhere, there will be fewer jobs creating activities, meaning that, even less tax revenue is generated, because, there will be fewer tax-payers.
It is said, and accurately, that liberalism is a mental disease. That’s easily demonstrated by policies that result in the opposite of what liberals intended.
Flight of the golden geese
No, the lunatics aren’t paying attention. They only make decision based on whether the subject sounds like a good idea. The fact that the ideas don’t work doesn’t deter them a bit.
The Norwegian government didn’t do the math:
(1) If it costs less to leave the country than the tax bill, people will leave almost every time.
(2) Since the rich spend money much more effectively than Governments do, there’s a double tax loss for the Government.
Leftist greed has no limits.
Norway has had huge taxes on income for decades.
So when the Leftists add a wealth tax in 2021 is just another move by them for the government to own everything.
The incremental cost of making a change to your living arrangements or your tax domocile is minuscule when you have lots of money. This is why the rich so easily make rules for the rest of us to follow... they are not impacted by these rules. The cost to them is either zero or very little.
Kings should never be king.
Møøse bites can be veri nasti.
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