The Norwegian government recently published its tax proposal for 2023 in English. The document contains many ideas that could be applied in the United States as well as a corrective to some American discourse on northern taxation.
1. Vehicle taxes
When a Norwegian buys and registers a new vehicle, he is subject to three main taxes: a weight tax, a tax on carbon emissions (CO2) and a tax on nitrogen oxide emissions (NOx) .
In the tax proposal, the NOx tax is set at $12.67 multiplied by the number of milligrams of NOx the vehicle emits per mile driven. The Transportation Services Office estimates that the average light vehicle in the United States emits 157 mg of NOx per mile driven. Such a car would thus be subject to a one-time registration tax of $1,989 in Norway.
The CO2 tax is assessed in the same way as the NOx tax, except that it is a progressive tax whose rates increase according to the amount of carbon emitted by a vehicle per kilometer travelled. The following graph summarizes the scale of the CO2 tax.
According to the Ministry of Energy, the average light vehicle produced in 2021 issued 348 grams of CO2 per mile driven. Such a vehicle would have been subject to a tax of $27,167 in Norway.
Like the CO2 tax, the vehicle weight tax is imposed progressively, with heavier vehicles being taxed at a higher rate than lighter vehicles. Before 2023, electric vehicles were not subject to weight tax. In 2023, they will be subject to a weight tax but at a much lower rate than non-electric vehicles. The following chart summarizes the weight tax schedule.
Taken as a whole, the vehicle tax regime reflects a clear policy agenda to strongly discourage the use of non-electric personal vehicles, especially large ones. And it works. In 2011, only 1% of new vehicles in Norway were zero emission vehicles. In 2022, the number has increased to 78%.
So, although the above taxes seem quite high, they can largely be avoided by purchasing an electric vehicle, especially a light-duty one. And that is what the vast majority of Norwegians now do.
2. The Wealth tax
In the 2023 tax proposal, Norway has a progressive wealth tax at two rates: 1% of wealth valued between $166,600 and $1.96 million and 1.1% of wealth valued at more than 1, $96 million.
It is not a simple net worth tax because not all wealth is valued at market price.
For wealth tax purposes, principal residences are assessed at 25% of their market price between $0 and $980,000 and at 50% of their market price above $980,000. Second homes are valued at 95% of their market price.
Stocks and investment properties are valued at 80% of their market price, while non-residential fixed assets are valued at 70% of their market price.
These partial valuations shield much more wealth from wealth tax than nominal wealth tax brackets suggest.
They too tender make the wealth tax more progressive because main residences represent a much lower share of the portfolio of the very wealthy than of the rest of the population.
As expected, the wealth tax is very concentrated about the richest and wealthiest people in Norway.
In fact, the Norwegian wealth tax is the only reason that the overall progressivity of the Norwegian tax system remains at the very top of the Norwegian wealth and income distribution.
3. Overall progressivity
There is a common line in American discourse about the Nordic countries that they don’t have progressive tax systems. I’ve written many times about the basic nonsense of this point, but it’s also worth pointing out that, while this may have been true in the late 1990s and early 2000s after a wave of conservative of governance has crossed the region, it is not really true now, at least not in Norway.
The claim that Norway had regressive taxes was mainly based on three observations: 1) its taxes on labor – the general income tax, the bracket tax and the payroll tax – are only slightly progressive, 2) it uses a dual income tax system that taxes capital less income than labor income, which ends up lowering taxes for the upper class, 3) it has high consumption taxes , which hit the lower and middle class (as a percentage of income) more than the upper class. Since the progressivity of (1) is surely outweighed by the regressivity of (2) and (3), it seems that Norway has a flat or regressive overall tax system.
But according to number keepers in Norway, that hasn’t been the case since around 2006, when dividend taxes were raised sharply in the country (the 2023 proposal raises them another 2 percentage points). Today, the taxation of capital income and the taxation of assets ensure a progressive distribution of direct taxation throughout the scale.
The addition of indirect taxes, including the formidable regressive taxes on consumption, does not cancel out this overall progressivity.
As stated earlier, the idea that tax progressivity is an important goal in itself is, in my view, quite wrong. Nevertheless, with appropriate levels of taxation of wealth and capital income, it is possible to ensure a progressive overall tax regime, even with the kind of heavy consumption taxes currently lacking in the United States.
4. Tax resource rents
Norway is nothing if it is not invested in the idea that the proceeds of natural resource wealth should be captured collectively rather than by private owners. Thus, from 2022, it had a special corporate tax of 71.8% on oil companies in addition to extensive state ownership in the oil sector. It also had a special tax of 47.4% on hydro rents, an area where there is also extensive state ownership. In the 2023 tax proposal, the hydropower tax is increased by 10.3 percentage points to 57.7%.
Building on this foundation, the government is now proposing a special resource rent tax on the aquaculture sector, which uses the ocean to farm salmon and other fish primarily for export, and on the onshore wind energy sector. From proposal:
The government has made it clear in the Hurdal Platform that local communities and society as a whole should receive a fair share of the value created from the use of society’s natural resources. The principle that society as a whole should receive a share of the benefits generated by the use of society’s natural resources has served Norway well. Without it, we would not now have the Government Pension Fund. Like oil and water resources, aquaculture and wind resources are non-delocalizable tax items that should be taken advantage of at a time when many tax bases are becoming more mobile. The government is now proposing the introduction of a resource rent tax on aquaculture and onshore wind, which will come into effect from fiscal year 2023.
Much of the tax discourse focuses on things like how much the rich pay versus how much the poor pay or how the tax code can be used to incentivize or discourage certain behaviors. But scouring the economy for rents on natural resources – which are produced by nature, not a person – and shaping the tax code to capture that free money for the common good is something all governments should try to do.
5. Tax the rich to fight inflation
The tax proposal contains one last item worth noting, mainly for the way it is presented as its details. Currently, Norway has an employer-side payroll tax, similar to social security and health insurance taxes here. It is a flat tax assessed on all income, although the rate varies by region as part of a general policy objective of leveling out geographical disparities in income.
For 2023, the government proposes to increase this tax by 5 percentage points for income above NOK 750,000 (~$73,500). He justifies this proposal, which breaks quite significantly with the tradition of the flat tax for employers’ social charges, as follows:
The government is seriously tackling the challenges that ordinary people face in their daily lives, such as the rapidly rising prices of a variety of daily necessities. … As a measure adapted to the situation, the government is offering additional employers’ national insurance contributions nationwide for salaries above NOK 750,000 in 2023. This measure will help to increase the budgetary room for maneuver by around 6, 4 billion NOK and allows a stronger redistribution. The overheating of the labor market and the glut of job vacancies indicate that the time has come to introduce additional employers’ national insurance contributions
The American discussion of controlling inflation has varied between arguments about whether inflation is happening in a meaningful way, whether it is happening because of a handful of dysfunctional sectors, and whether the use of bulls interest rate hikes in an attempt to control inflation would do more harm than good.
Although there previously seemed to be a lot of interest on the left in the idea of using taxes and spending to control the level of prices, hardly anyone has so far proposed doing so in the face of current inflation.
Norway’s decision is therefore remarkable because the left-wing government is at least paying lip service to the idea of raising taxes on high earners – in this case indirectly through an assessment of their employers. , which these employers may actually struggle to push through in the future. short term — as a measure to cool the economy. Such a thing is of course unthinkable in the United States, not least because of President Biden’s pledge not to raise taxes on anyone earning less than $400,000. But, on substance, it seems like such a thing should be in the mix, especially if we think the income distribution and capital allocation effects of rate hikes are much worse.