Obama suggests value-added tax may be an option

[DGuller]

I was talking about a defined benefit plan. It isn't common to call a defined contribution plan a pension.

In the US it is pretty common, though.  There are generally considered to be two types of pensions in the US:  defined benefit and defined contribution.  YMMV.

I'm not going to argue it, but I'm in the US. I haven't heard people refer to a 401k as a pension plan, and part of my job is to work with benefit plans.

I'm going to side completely with AR on this one.  I've never seen pension being used in ways other than to refer to defined benefit plans.  However, the actuarial perspective may be biased, since actuaries are not needed for defined contribution plans.

[DGuller]

I think the Japanese found out that isn't actually true.

And the US is going to find that out as well - actually, we already know it.

I didn't say that you're guaranteed to get away with it.  Theoretically, government social programs don't necessarily need to be funded to last indefinitely.

[grumbler]

I'm not going to argue it, but I'm in the US. I haven't heard people refer to a 401k as a pension plan, and part of my job is to work with benefit plans.

I have never heard anyone refer to a 401k plan as a pension, either.  Nor an IRA, nor a 403(b).  Is anyone saying that these are pension plans?  If so, i haven't heard it.

If you are arguing that you nave never heard of a defined-contribution retirement plan that is not a 401(k), and you deal with benefit plans, you should educate yourself.  There are several types of IRAs, there are 403(b) plans, and there are pensions that are defined-contribution plans.

[The Minsky Moment]

This isn't just Obama - though I'm impressed he's mentioned it.  I've read a huge number of arguments from tax professionals since I started my new job that basically say the US should adopt a VAT and some people predict that as globalisation increases and high-earners, like companies, can increasingly move around to choose a tax liability that personal income tax will move the way of corporate income tax. 

The problem of personal mobility is not so much an issue for the US b/c the US is one of the few countries that tax citizens regardless of their place of residence or source of income.   An American can only tax arbitrage by renouncing citizenship.

Also I think the problem is exaggerated (and I note your source being "tax professionals" is not entirely without bias).  On the margins, there will always be some high earners who will tax arbitrage.  But there are practical limitations.  Not everyone can (much less want to) live 183 days out the year in Andorra, or Zug, or the Rock of  Gibraltar.  It does sometimes happen with fashion models, or certain sports figures, a handful of rentiers, and your odd hedge fund manager.  But it is far from the inevitable drain on the fisc that alarmists might claim. 

[Sheilbh]

The problem of personal mobility is not so much an issue for the US b/c the US is one of the few countries that tax citizens regardless of their place of residence or source of income.   An American can only tax arbitrage by renouncing citizenship.

This is true. Only other country I can think of is China, though a few require Social Security contributions from overseas workers.

Also I think the problem is exaggerated (and I note your source being "tax professionals" is not entirely without bias).  On the margins, there will always be some high earners who will tax arbitrage.  But there are practical limitations.  Not everyone can (much less want to) live 183 days out the year in Andorra, or Zug, or the Rock of  Gibraltar.  It does sometimes happen with fashion models, or certain sports figures, a handful of rentiers, and your odd hedge fund manager.  But it is far from the inevitable drain on the fisc that alarmists might claim.

You're right.  Though I think this could be more of a problem in countries like the UK and, at the moment, India that I think have a common law definition of residence meaning you can avoid taxes more easily than in a country that's got relatively straight forward residence requirements. 

The other point is that one of the successes of the past year's been far greater adoption of tax treaties by a lot of tax havens.  I didn't think the French push for a crackdown on tax havens would amount to much but from what I've read - and the rate at which treaties seem to be being signed is actually really rather impressive.

[The Minsky Moment]

The other point is that one of the successes of the past year's been far greater adoption of tax treaties by a lot of tax havens.  I didn't think the French push for a crackdown on tax havens would amount to much but from what I've read - and the rate at which treaties seem to be being signed is actually really rather impressive.

The tax havens are feeling the squeeze from all sides with the Germany and US Justice Department joining the fray in a big way.  The UK under Brown has also been aggressive lately for the very reasons you mentioned.

[DGuller]

The other point is that one of the successes of the past year's been far greater adoption of tax treaties by a lot of tax havens.  I didn't think the French push for a crackdown on tax havens would amount to much but from what I've read - and the rate at which treaties seem to be being signed is actually really rather impressive.

The tax havens are feeling the squeeze from all sides with the Germany and US Justice Department joining the fray in a big way.  The UK under Brown has also been aggressive lately for the very reasons you mentioned.

What leverage do the big countries have against Caribbean islands that don't give a shit about them, and like having billionaires living on them to escape the taxes?

[The Minsky Moment]

What leverage do the big countries have against Caribbean islands that don't give a shit about them, and like having billionaires living on them to escape the taxes?

Anything from imposing giant withholding taxes on all foreign source income to seizing overseas assets.  Or putting them on lists of terrorist funding sources. 

[Neil]

And the majors can afford to wait the tax havens out, thanks to melting ice sheets.

[Sheilbh]

What leverage do the big countries have against Caribbean islands that don't give a shit about them, and like having billionaires living on them to escape the taxes?

Enough that all of the countries that were on the OECD's blacklist have no moved to the white list (minimum number of double taxation treaties and enhanced exchange of information laws in effect) or the grey list (the above but not fully implemented).  The G20 have discussed measures to take on countries that the OECD believe are dragging their feet or not cooperating with minimum exchange of information standards.  Not least for the legitimate reasons JR brings up.

[MadImmortalMan]

Tax havens create international competition to keep taxes from getting too high. They should be protected, not sanctioned.

[The Minsky Moment]

Tax havens create international competition to keep taxes from getting too high. They should be protected, not sanctioned.

Tax havens are parasitical free riders on the international state and financial system.  Like most parasites, they are tolerable until they start getting too big and numerous.

The way to keep taxes low is for people to insist on lower taxes (and thus lower spending).  If people choose otherwise, that is democracy in action. 

[The Brain]

Democrazy doesn't work and I think we all know it.

[Ed Anger]

If I have to pay 20% on my burrito, I'm going to kick a European in the nuts.

[Sheilbh]

Tax havens create international competition to keep taxes from getting too high. They should be protected, not sanctioned.

I don't think they've a great deal to do with the general move towards broader based taxation at lower rates.  I mean the EU is an example.  In the EU 15, I think the past 20 years has seen average corporate income tax rates fall by 1% - that was largely started by Ireland cutting corporate tax to 20% (it's now 12.5%).  Right now New Zealand's worrying about her tax rates being too high, not for fear of Nauru but Australia.  Personally I suspect perceived quality of governance matters more than tax rates in terms of investment.

Similarly the majority of tax cuts in the West in the past few years have been to do with reducing the top rate of tax.  While tax havens are a worry, most people in those brackets moving abroad will be going to similar sorts of developed countries.  It's as much a concern about a brain drain as tax evasion that's forced those rates down.

Edit:  Incidentally the problem with tax havens isn't the low rates - no one wants Switzerland or Hong Kong to increase their tax rates - it's the secrecy and unwillingness to adhere to minimum international standards that allows, in the recent UBS case, massive law-breaking to go on.  The G20 want them to sign exchange of information deals and some number of tax treaties, not increase their rates.