Chronicles of Norway’s Capital Flight

Introduction:

Norway’s implementation of a wealth tax and subsequent departure of wealthy individuals has sparked a significant loss in revenue. The exodus of “super rich” Norwegians in 2022 surpassed the total number of departures over the past 13 years. This case study explores the implications of Norway’s wealth tax and the lessons to be learned from the exodus of wealth creators.

The Departure of Wealthy Individuals:

In 2022, more than 30 Norwegian billionaires and multimillionaires left the country, including Kjell Inge Røkke, Norway’s third richest man. The departure of these individuals has significant financial consequences, estimated at a loss of $54 billion in total fortune.

The Impact of Norway’s Wealth Tax:

The Norwegian Labor Party, after winning the 2021 election, increased the country’s wealth tax to 1.1 percent. This move aimed to generate additional revenue but resulted in capital flight and threatened job creation. The wealthy reacted by leaving the country, leading to a substantial decrease in tax revenue.

Lessons from Robert Lucas:

The late economist Robert Lucas’s work highlights the importance of understanding individual behavior and rational responses to policies. Norway’s assumption that wealthy individuals would passively endure increased wealth taxes proved misguided. Lucas’s insight emphasized the rationality of individuals and the need to consider their responses to policies.

The Art of Taxation:

Norwegian lawmakers neglected Jean-Baptiste Colbert’s wisdom on taxation – to obtain the maximum amount of feathers (revenue) with the least hissing (resistance). By disregarding this principle, Norway witnessed the departure of wealth creators, taking their capital, ingenuity, and taxable income with them.

Implications for the United States:

Norway’s experience offers valuable insights as the United States considers implementing wealth taxes. Several states are exploring unrealized capital gains taxes and wealth taxes similar to or higher than Norway’s. However, Norway’s exodus of wealth creators serves as a warning against such policies, highlighting the potential for significant repercussions.

Conclusion:

Norway’s ill-fated wealth tax implementation and subsequent departure of wealth creators demonstrate the unintended consequences of burdensome tax policies. The exodus of wealthy individuals resulted in substantial financial losses for the government, showcasing the need for thoughtful and rational approaches to taxation. The lessons from Norway’s experience should serve as a cautionary tale for policymakers contemplating wealth taxes elsewhere.