This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Morici: Tax Reform -- Eliminate the Income Tax and IRS Altogether

NEW YORK (TheStreet) -- Americans desperately want a fairer tax system and relief from arbitrary treatment by the IRS. True reform requires simply junking the personal and corporate incomes in favor of a consumption tax.

House Ways and Means Committee Chairman Dave Camp estimates tax filing, recordkeeping and the like amounts to $168 billion a year -- a terrible waste exceeding 10% of the taxes collected. Much of the personal information revealed is a terrible invasion of privacy, and the constant fear the IRS will audit taxpayers for their political activities is outright tyranny.

The tax code is riddled with special interest provisions that favor rich donors to political campaigns, distort business decisions and consumer choices, and handicaps economic growth and jobs creation.

Camp proposes to eliminate or modify many exemptions, deductions and other special provisions, but just the summary of those reforms takes 194 pages to explain in language only a tax expert could fully comprehend. Despite noble intentions, much of the morass would remain, and the biggest beneficiaries would be lawyers and accountants tasked by the rich and big corporations to game the new system.

The tax code would continue to heavily tax America's biggest jobs creators small businesses who cannot afford those professionals to effectively compete with big corporations and to disadvantage American businesses in foreign markets where governments rely more on consumption taxes than levies on income.

In 2013, the Treasury collected $1.6 trillion from corporate and personal income taxes. This could be replaced by a 12% sales tax on all private purchases and other paymentsbe they computer equipment, college tuition or lunch at the corner takeout.

Businesses and institutions would then pay to Treasury the taxes they collected less sales taxes paid on purchases of materials and equipment, rent and the like. This subtraction would avoid the double taxation of materials and equipment businesses purchase and create a value added tax often proposed by advocates of reform.

It would end forever all the headaches associated with valuing inventories, calculating depreciation on capital equipment and other work that cost billions in accounting and legal fees.

A VAT would favor no activity over another, and by taxing goods and services at the point of sale, it would end the problem of U.S. firms parking profits abroad to avoid taxes.

Businesses and institutions would file a three line return, how much tax they collected, how much they paid and the difference. Individuals would file no tax return at all!

Temptations would abound to exclude or exempt all kinds of activities but that is the kind of thinking that gave us the current mess and inequities, slow growth and exceeding complex tax returns.

Two problems remain. A VAT is not progressive it taxes rich and poor consumers at the same rate. The elderly, who more or less live on savings, have already paid income taxes on those savings and would be taxed again.

A simple solution would be to raise the rate to 15%, and award each parent $4,000 for each child and pay similar amounts to each American over 65.

If Congress wants to spend more, it could raise the rate further. That would make transparent to all the cost of spending more on government activities. If conservatives on Capitol Hill want to cut programs, they could explain to voters how much those savings would lower the rate.

Elegant, egalitarian and efficient, such a value-added tax without exemptions would give Americans the tax reforms they want but privileged rich folks and big businesses spend a fortune avoiding.

The economy would grow faster, create more jobs and Americans would live better and in less fear. And that is what America is supposed to be about.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.24 0.00%
FB $83.01 0.00%
GOOG $555.17 0.00%
TSLA $190.41 0.00%
YHOO $44.47 0.00%

Markets

DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs