How to Replace the Income Tax

SMITH BRAIN TRUST -- Personal and corporate income tax laws are complex and expensive. The collective cost of tax filing, record keeping and the like is least $170 billion a year, says professor Peter Morici at the University of Maryland's Robert H. Smith School of Business. In a column today, Morici says other nations more efficiently rely on consumption taxes than income taxes. The U.S. system should shift in that direction, he says. 

Morici proposes to “junk income taxes altogether in favor of a simple national sales tax -- a value-added tax similar to one applied in much of Europe.” The $1.7 trillion collected last year from corporate and personal income taxes “could be replaced by a 12 percent sales tax on all private purchases and other payments -- be they computer equipment, college tuition or lunch at the corner takeout,” Morici says.

Don’t bank with the IRS. In the current system, savvy U.S. filers should avoid “banking with the IRS,” says Smith accounting professor Leslie Mostow in the March 19 issue of Smith Brain Trust. He recommends opting for minimal deductions through the year, rather than paying a surplus to the IRS, because tax refunds represent loan repayments without interest. Rather than using the IRS like a savings account, a better approach is to pay as you go and invest any extra money yourself -- such as in a 401(k). “I don’t want to get a refund,” Mostow says. “I want to write a check in April.”

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