Issue #218: What would happen if the IRS was abolished?

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December 13, 2023 • Issue #218

Money dollarscholar Figuring out personal finance, one question at a time

Hi y’all —

What do you want for Christmas?

Nationally, the hottest children’s toys include the latest Barbie Dreamhouse, the Bitzee Interactive Toy Digital Pet and the Hot Wheels Ultimate T-Rex Transporter. I have my eye on a lime juicer, Hogwarts Legacy for Nintendo Switch and a copy of The Kudzu Queen by Mimi Herman.

But if you take a peek at the Santa letters penned by lawmakers like Sen. Ted Cruz, R-Texas, and Rep. Earl “Buddy” Carter, R-Ga., I’d bet their No. 1 ask is… to get rid of the IRS.

It’s not a new concept — politicians have been talking about abolishing, or at least defunding, the Internal Revenue Service for years. The proposal makes headlines monthly, but the agency’s funding has become an especially hot topic ever since Congress gave the IRS $80 billion in the 2022 Inflation Reduction Act.

It makes me wonder… what would happen if the U.S. actually did eliminate the IRS?

When I posed this question to Joe Hughes, federal policy analyst at the Institute on Taxation and Economic Policy, he wanted to make one thing clear right away: “There’s no feasible way to abolish the IRS.”

That’s because getting rid of the IRS does not mean getting rid of taxes. Nixing the IRS would simply mean Congress would have to come up with a new tax collection system, he says, because expecting roughly 168 million individual taxpayers to “mail off a check to the Treasury every year” is unrealistic.

Although there are countries without income taxes, like Bahrain and the Bahamas, they’re muuuch smaller than the U.S. Hughes says they’re able to collect enough revenue through tourism or exports to forgo income taxes on residents; this isn’t feasible for a large, complex economy like ours. And he points out that even in those income-tax-less countries, there are consumption taxes overseen by revenue agencies.

“To my knowledge, there's not a country that collects any type of tax revenue that doesn't have an agency to administer it,” Hughes adds.

Introduced in January, Carter’s Fair Tax Act aims to eliminate the need for the IRS by simplifying the tax code — namely, by getting rid of payroll, self-employment, corporate, estate, capital gains and other taxes — and establishing a 30% sales tax on goods and services. But Alex Muresianu, a federal policy analyst at the Tax Foundation, predicts that this system would lean heavily on state-level revenue departments.

' S ICET @FINALLEVEL Eliminate the IRS????? you just got my attention! 11:01 AM - Sep 17, 2015

State agencies aren’t built to handle that burden. In addition, Hughes says, there are several states that don't have a sales tax of their own — so the federal government might have to create an agency to administer taxes in those states. (“That's something that sounds a lot like an Internal Revenue Service,” he says.)

The proposed retail tax also might not be high enough. According to a March analysis by the Brookings Institution, a tax at that level “would be insufficient to replace current … income, payroll, and estate and gift tax revenue.” When accounting for tax avoidance and evasion, the Fair Tax Act would result in a revenue loss of nearly $18 trillion over the next decade. Not good.

OK, so what about a less drastic option? What if, hypothetically, Congress just defunded the IRS instead of eliminating it entirely?

Well, to an extent, this is already happening.

When the Democrat-led Inflation Reduction Act initially set aside $80 billion over 10 years for the IRS to crack down on wealthy tax dodgers, several Republican legislators objected. They worried the money would actually be used to hire thousands of agents who would make life harder for everyday taxpayers, families and small businesses. So as part of the debt-ceiling deal hammered out in June, the parties agreed to claw back about $20 billion of that sum.

Muresianu says it’s more plausible that we’d see Congress continue to roll back the Inflation Reduction Act funding than get rid of the IRS. Recent improvements in customer service likely wouldn’t be impacted; rather, the efforts to beef up enforcement would be curbed. This isn’t universally considered to be a great deal, though. Research has shown that every extra dollar the IRS spends on auditing the top 10% can yield $12 in revenue.

“If we slash the IRS, then we're going to collect less revenue,” Hughes says.

The bottom line

(but please don't tell me you scrolled past all of my hard work)

It might sound nice, but abolishing the IRS doesn’t abolish taxes. It also doesn’t abolish the need for some sort of agency to oversee some sort of revenue collection. No matter what it’s called, the experts I talked to say the U.S. would still likely need some sort of tax system in place.

“If you want the federal government to have services, you're going to need revenue to fund those services, and somebody’s going to have to collect that revenue,” Muresianu says.

via Giphy

Receipt of the week

check out this wild celebrity purchase

via Instagram

Last month, rapper Kendrick Lamar bought a penthouse apartment in Brooklyn for $8.6 million. The 3,140-square-foot duplex has four bedrooms, three and a half bathrooms, a terrace, a landscaped rooftop and a view of the East River. Say it with me: DAMN.

Internet gold

five things I'm loving online right now

Happy birthday to Madison, a girl who celebrated her birthday at Costco and filmed it all for the enjoyment of TikTok. She held the “cheapest birthday dinner yet” — which included five hot dogs, a chicken bake, a chicken Caesar salad, a cheese pizza and soda — in the food court, and it came out to just $30.88. Dessert was cake, churros and ice cream sundaes. Brilliant.

Speaking of Costco, have you all seen the series Can It Kirkland? A band of guys who live in Los Angeles host a TikTok show in their kitchen in which they test different varieties of alcohol to see whether the drinks can pass for name brand. It’s absolutely hilarious — especially the White Claw and Grey Goose episodes.

Everybody say thank you to Gym Class Heroes drummer Matt McGinley for this year’s Rockefeller Center Christmas tree.

Merriam-Webster released its word of the year, and it’s “authentic.” Runners-up include rizz (defined as “romantic appeal or charm”), implode (“to burst inward” like the Titan submersible) and coronation (“the act of placing a crown on a monarch’s head,” like with King Charles).

I’m kind of obsessed with the new HelloFresh meal kit that includes ingredients for the spaghetti from Elf, including candy, chocolate cereal, marshmallows, maple syrup and chocolate syrup. (Sadly, it’s already sold out.)

401(k)9 CONTRIBUTION

send me cute pictures of your pets, please

via Anne Saladino

Meet Morgana, a pup who is enjoying her new blanket and pawndering the future of the IRS.

See you next week.

P.S. Do you think the IRS should be abolished? Are you a Sam’s Club stan or a Costco supporter? What’s your favorite holiday recipe? Send syrup to [email protected] ahead of our last issue of the year.

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͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ December 13, 2023 • Issue #218 Money dollarscholar Figuring out personal finance, one question at a time Money dollarscholar Figuring out personal finance, one question at atime Hi y’all — What do you want for Christmas? Nationally, the hottest children’s toys include the latest Barbie Dreamhouse, the Bitzee Interactive Toy Digital Pet and the Hot Wheels Ultimate T-Rex Transporter. I have my eye on a lime juicer, Hogwarts Legacy for Nintendo Switch and a copy of The Kudzu Queen by Mimi Herman. But if you take a peek at the Santa letters penned by lawmakers like Sen. Ted Cruz, R-Texas, and Rep. Earl “Buddy” Carter, R-Ga., I’d bet their No. 1 ask is… to get rid of the IRS. It’s not a new concept — politicians have been talking about abolishing, or at least defunding, the Internal Revenue Service for years. The proposal makes headlines monthly, but the agency’s funding has become an especially hot topic ever since Congress gave the IRS $80 billion in the 2022 Inflation Reduction Act. It makes me wonder… what would happen if the U.S. actually did eliminate the IRS? When I posed this question to Joe Hughes, federal policy analyst at the Institute on Taxation and Economic Policy, he wanted to make one thing clear right away: “There’s no feasible way to abolish the IRS.” That’s because getting rid of the IRS does not mean getting rid of taxes. Nixing the IRS would simply mean Congress would have to come up with a new tax collection system, he says, because expecting roughly 168 million individual taxpayers to “mail off a check to the Treasury every year” is unrealistic. Although there are countries without income taxes, like Bahrain and the Bahamas, they’re muuuch smaller than the U.S. Hughes says they’re able to collect enough revenue through tourism or exports to forgo income taxes on residents; this isn’t feasible for a large, complex economy like ours. And he points out that even in those income-tax-less countries, there are consumption taxes overseen by revenue agencies. “To my knowledge, there's not a country that collects any type of tax revenue that doesn't have an agency to administer it,” Hughes adds. Introduced in January, Carter’s Fair Tax Act aims to eliminate the need for the IRS by simplifying the tax code — namely, by getting rid of payroll, self-employment, corporate, estate, capital gains and other taxes — and establishing a 30% sales tax on goods and services. But Alex Muresianu, a federal policy analyst at the Tax Foundation, predicts that this system would lean heavily on state-level revenue departments. ' S ICET @FINALLEVEL Eliminate the IRS????? you just got my attention! 11:01 AM - Sep 17, 2015 State agencies aren’t built to handle that burden. In addition, Hughes says, there are several states that don't have a sales tax of their own — so the federal government might have to create an agency to administer taxes in those states. (“That's something that sounds a lot like an Internal Revenue Service,” he says.) The proposed retail tax also might not be high enough. According to a March analysis by the Brookings Institution, a tax at that level “would be insufficient to replace current … income, payroll, and estate and gift tax revenue.” When accounting for tax avoidance and evasion, the Fair Tax Act would result in a revenue loss of nearly $18 trillion over the next decade. Not good. OK, so what about a less drastic option? What if, hypothetically, Congress just defunded the IRS instead of eliminating it entirely? Well, to an extent, this is already happening. When the Democrat-led Inflation Reduction Act initially set aside $80 billion over 10 years for the IRS to crack down on wealthy tax dodgers, several Republican legislators objected. They worried the money would actually be used to hire thousands of agents who would make life harder for everyday taxpayers, families and small businesses. So as part of the debt-ceiling deal hammered out in June, the parties agreed to claw back about $20 billion of that sum. Muresianu says it’s more plausible that we’d see Congress continue to roll back the Inflation Reduction Act funding than get rid of the IRS. Recent improvements in customer service likely wouldn’t be impacted; rather, the efforts to beef up enforcement would be curbed. This isn’t universally considered to be a great deal, though. Research has shown that every extra dollar the IRS spends on auditing the top 10% can yield $12 in revenue. “If we slash the IRS, then we're going to collect less revenue,” Hughes says. The bottom line (but please don't tell me you scrolled past all of my hard work) It might sound nice, but abolishing the IRS doesn’t abolish taxes. It also doesn’t abolish the need for some sort of agency to oversee some sort of revenue collection. No matter what it’s called, the experts I talked to say the U.S. would still likely need some sort of tax system in place. “If you want the federal government to have services, you're going to need revenue to fund those services, and somebody’s going to have to collect that revenue,” Muresianu says. Money please! via Giphy Receipt of the week check out this wild celebrity purchase Kendrick Lamar via Instagram Last month, rapper Kendrick Lamar bought a penthouse apartment in Brooklyn for $8.6 million. The 3,140-square-foot duplex has four bedrooms, three and a half bathrooms, a terrace, a landscaped rooftop and a view of the East River. Say it with me: DAMN. Internet gold five things I'm loving online right now 1 Happy birthday to Madison, a girl who celebrated her birthday at Costco and filmed it all for the enjoyment of TikTok. She held the “cheapest birthday dinner yet” — which included five hot dogs, a chicken bake, a chicken Caesar salad, a cheese pizza and soda — in the food court, and it came out to just $30.88. Dessert was cake, churros and ice cream sundaes. Brilliant. 2 Speaking of Costco, have you all seen the series Can It Kirkland? A band of guys who live in Los Angeles host a TikTok show in their kitchen in which they test different varieties of alcohol to see whether the drinks can pass for name brand. It’s absolutely hilarious — especially the White Claw and Grey Goose episodes. 3 Everybody say thank you to Gym Class Heroes drummer Matt McGinley for this year’s Rockefeller Center Christmas tree. 4 Merriam-Webster released its word of the year, and it’s “authentic.” Runners-up include rizz (defined as “romantic appeal or charm”), implode (“to burst inward” like the Titan submersible) and coronation (“the act of placing a crown on a monarch’s head,” like with King Charles). 5 I’m kind of obsessed with the new HelloFresh meal kit that includes ingredients for the spaghetti from Elf, including candy, chocolate cereal, marshmallows, maple syrup and chocolate syrup. (Sadly, it’s already sold out.) 401(k)9 CONTRIBUTION send me cute pictures of your pets, please Morgana via Anne Saladino Meet Morgana, a pup who is enjoying her new blanket and pawndering the future of the IRS. See you next week. P.S. Do you think the IRS should be abolished? Are you a Sam’s Club stan or a Costco supporter? What’s your favorite holiday recipe? Send syrup to [email protected] ahead of our last issue of the year. Facebook Twitter Instagram Youtube LinkedIn TikTok Threads This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money. • Advertise With Us • We're Hiring! To stop receiving these emails, or . Copyright ©2023 Money Group, LLC. All rights reserved. Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA

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