What Would Happen if the U.S. government were to Abolish the Federal Income Tax?

Obviously, the Federal Government would bring in approximately $3.7 trillion fewer dollars by abolishing the Federal Income Tax. (This amount could be less next year due to the corona virus shutdown and fewer people/businesses paying taxes.) Between the cost of the CARES Act (the $2 trillion Covid-19 Stimulus Bill) and coming bailouts, this is roughly equivalent to the number of dollars printed to bail out some of the entities that failed during the corona-virus pandemic shut-down. By printing 3.1 trillion dollars to bail many businesses out, the government simply replaced the dollars that weren’t paid in taxes by the businesses that were permanently shut down. In short, the economy just broke even, at best. Instead of printing more money, if the U.S. government had simply not collected the $3.1 trillion in tax revenue, the economy could have come out ahead in the following ways:

  1. The federal government wouldn’t need to take tax dollars out of the economy just to put them back in somewhere else and it wouldn’t need as many employees to collect or distribute the taxes. This could save billions of dollars.
  2. Fewer businesses would go out of business if they don’t have to pay taxes.
  3. Thousands of hours spent filling out forms could be spent on productive endeavors, instead.
  4. The U.S. government would go into debt by $3 trillion more than it already has. At this point, does it really matter since the government won’t be able to pay off its debts anyway? It’s going to have to print trillions more dollars and keep interest rates artificially low to avoid “defaulting” on its debts anyway. The ultimate demise of the currency would just occur a little sooner without the income tax revenue.
  5. People and businesses could focus on the best uses of their time and resources, rather than always guessing what their bankrupt partner (IRS) wants.
  6. Some tax attorneys, accountants, government employees, and tax preparation companies would be forced to change professions. They would lobby against such a plan. Other lobbyists would have less to lobby about, as well. Instead of lobbying for preferential treatment, they, too, could become productive people.
  7. There would be more money available for the states to collect their taxes.
  8. The rest of the world would think that the U.S. had gone crazy, but they would be happy to send their money to invest there because the U.S. would be the best place in the world to invest…tax free!
  9. People could have a taste of the freedom that made this country great in the first place. Perhaps then they wouldn’t be so afraid of the flu and so easily discouraged from working.

Bottom line: The U.S. federal government is so far in debt that it won't be able to pay off its debt without inflating its currency out of existence. It might as well set its people free so they can save themselves. Why pull the rest of the world down with the spendthrifts in the U.S. government? Ah, but then the power would shift from the people in the governments to the people who are productive. We can’t have that, now can we?

Robert F. Sennholz

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