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Peter Schiff: U.S. Should Abolish Corporate and Personal Income Taxes

Peter Gorenstein

Facing a $1.6 trillion budget deficit, even Congress knows the size of the government debt is unsustainable. However, both parties lack the political to will to act. Republicans talk about cutting government spending, though the record shows they are no more fiscally prudent than Democrats. Democrats say "tax the rich," but President Obama agreed to extend the Bush-era tax cuts for all.

The real fix probably lies in a combination of higher taxes and smaller government, says Peter Schiff CEO of Euro Pacific Capital. "We need to reduce the size of government. In fact, if we can cut government enough, then we can reduce taxes," he tells Henry Blodget in the accompanying clip.

Schiff, a former candidate for U.S. Senate from Connecticut, believes the U.S. needs a total tax makeover, "so we don't encourage spending and debt." A long-time critic of what he sees as America's extreme spending habits, he recommends we simplify the entire tax system and do away with many popular deductions. You can argue whether his recommendations are foolish or courageous, but it's clear these ideas aren't likely to win him any future political races.

Here are some of his recommended tax reforms:

Abolish corporate taxes. "Why tax the corporations on the money they don't spend in salaries and they don't pay in dividends?" he asks. "That money is the money they use to grow their businesses to make capital investments." To this end, Schiff says he's currently working to incorporate his business offshore to avoid onerous U.S. taxes.

Abolish the home mortgage tax deduction. The government shouldn't be subsidizing home purchasing, distorting the market by "artificially reduc(ing) the cost of buying versus renting," he argues. That's an extremely tough sell as the mortgage deduction is undoubtedly one of the most popular deductions.

Create a "flat tax." Tax everyone at the same rate so you do not "punish people for earning more and working harder," he says.

Create a national sales tax. Schiff is a strong believer in taxing consumption rather than income, which he argues has a demotivating effect on the workforce. In fact, he's said in early interviews that he plans to leave Connecticut and move to Florida, where there is no state income tax.