On Pomperipossa
An Astrid Lindgren short story about the excesses of Scandinavian income taxation and a unicorn exiled from Norway by a government who wanted more money than he made.
Dear Friends,
As I sat down for my morning coffee, my friend Derek sent me a chat with a couple of links. I’ve known Derek since late nights programming in college, working at the same consultancy, and studying kendo on the weekends. Derek is a much smarter person and a brilliant programmer. We don’t live close enough to visit often, but we keep up via chat. Derek doesn’t do social media, a choice I’ve contemplated more than a few times, but he often provides the kernel of what becomes my writing.
Keep in touch with the Dereks in your life, it makes life better.
These are the two links:
Clicking the first one, it’s a news story about the founder of Norway’s first “unicorn1” startup leaving the country.
Frederik Haga founded Dune in 2018 and after his Series B funding round, the company was valued at over $1 billion. Norway taxes unrealized capital. Due to restrictions on shares, Haga couldn’t draw cash out of the business to pay a tax bill that was larger than his annual income.
“Independent of level, taxation needs to happen when you actually make money. I moved to Switzerland because no politician cares/listens,” Frederik Haga concluded. “I still don’t get any tangible and sensible answers to my criticism of unrealized gains tax, BUT I do get put up on the “wall of shame” at the socialist parties offices…”
Wealthy people structure their affairs to minimize their taxation and most laws are drafted to allow certain ways of avoiding taxation that benefit the wealthy people who donate to the campaigns of lawmakers. Because of that, most founders and business owners earn very little income, relative to the size of their company.
If they want to use more money than their income, they borrow against the value of an asset. It could be a house, as it was in the days of low interest rates, rising home values, and zero documentation home equity loans at prime rate. It could be a portfolio of securities, something called a pledged asset line of credit. Or it could be through a loan against stock options or shares.
In all of those situations, the asset is not sold, so there is no capital gains tax. Borrowing money is treated differently from earned income, because you have to pay it back and there is interest charged. In some situations, the cost of the interest may even be deductible against your earned income tax liability, if it can be plausibly related to “investment.”
Taxing the owner of a $100M company on the value of the company is foolish, it would be a better strategy to tax a small portion of borrowing transaction when it is executed. That puts the decision of whether to pay the tax on the owner of the asset and doesn’t force an untimely sale of an illiquid asset like land that is being improved or startup shares.
Basically an opt-in wealth tax for those wealthy people who want to leverage their wealth.2
If I have a company nominally worth $100MM, I can borrow $1MM per year to live on, but won't have any income, merely an interest expense (sometimes deductible!). Taxing me on $100MM is silly, but an excise of 0.5-1% on the borrowing transaction would be small enough to not be worth avoiding and accomplish the goal of taxing unearned revenue received by an individual through borrowing.
After I did all of that thinking about tax policy, I clicked Derek’s second link, to Astrid Lindgren’s story “Pomperipossa in Monismania.” Best known for the Pippi Longstocking books, Astrid Lindgren was a very successful Swedish author. So successful that she wrote a story about being taxed at 102% of her income by the Swedish government.
It is unwise to pick fights with people who buy ink by the barrel. Lindgren wrote a short story that was published in the Swedish newspaper Expressen on March 3, 1976, about a fictional woman who lived in a fictional land where everyone shared their earnings for the general welfare. It begins:
I am going to tell you a fairy tale. It is of a woman; let us call her Pomperipossa, which is a good name to call someone in fairy tales. She lived in a land that we call Monismania, for we have to name it something.
Pomperipossa loved her county, its forests, mountains, lakes, and green groves, and not only that, she also loved the people living there. And even the wise men that ruled the country, oh, she thought they were so wise, and because of that she voted faithfully for them every time there was an election to decide who should rule Monismania. Those that had decided everything for more than 40 years had made such a good community, she thought. No one in the land needed to be poor, everyone got a piece of the welfare cake, and Pomperipossa was full of joy that she had been able to contribute a good portion of the cake as they baked it and spread the wealth around. Oh the sweet aroma from a well baked cake!
There was something in Monismania called marginal tax rates. It meant that the more money you earned, more of that money would go to the head tax master, so he could make a bigger welfare cake. But he would not take more than 80 to 83% from anybody; no he wanted to be reasonable. “Dear Pomperipossa,” he said, “you can keep around 17 to 20% for yourself and use whichever way you want.” And Pomperipossa was filled with joy and kept skipping down the road of life. There were though many unsatisfied people in the land who beat their shields and wailed about “the oppressive taxes” as they used to call it. Pomperipossa never did that, nobody in all of Monismania had ever heard even a sigh from her about her contributions to the welfare cake. On the contrary, she thought it was altogether good and fair so she had set her mind to keep giving her vote to the wise men so they could keep on doing the best for her dear Monismania.
The whole story is worth a read and a reminder of how government policies backfire when they don’t take into account the real world effect on people.
Our country is entering a second term of a president who is very popular with Boomers, Silicon Valley VCs, and retirees. It is likely that tax policy will shift even more to those who own assets and place the burden on those who work for a living. If you haven’t started doing things to arrange your affairs to take advantage of that kind of tax policy, you might consider it as a way to build your resiliency.
Speaking of which, this is something I posted on Bluesky, a social media application that has many of the features of Twitter, without many of the downsides. If you would like to follow my writing on that platform, visit @nsarwark.bsky.social.
Enjoy your weekend, reach out and talk to people you have drifted away from, and be good to yourself.
Yours truly,
Nick
P.S. If you are looking to relocate in the next few months and need logistics advice or moving equipment, please reach out. We’re all in this together.
“In business, a unicorn is a startup company valued at over US$1 billion which is privately owned and not listed on a share market.”
This will not be popular with Boomers, VCs, or retirees, since reverse mortgages and home equity lines of credit are this same vehicle in miniature.