Should We Abolish the IRS?

Should we really fire the people who collect the money?

Tax Day is coming, and there has been a lot of talk about abolishing the IRS. Over the last 15 years, I helped over 1,000 low-and moderate-income families file their taxes. I care about this stuff.

Abolishing the IRS (or cutting the IRS budget or firing IRS employees) threatens whether you get your return processed, whether you receive your refund or your stimulus payment promptly, whether you get your identity theft resolved, whether you get your questions answered, and whether the people processing your return are properly trained.

It also impacts the number of people who cheat on their taxes. Tax processing is automated and the tax code is complex. So, corporations and the top 1% are most able to benefit from cheating. And, the rest of us are going to pay higher taxes because of it.

Should We Really Fire the People Who Collect the Money?

The IRS is the Internal Revenue Service. It is responsible for collecting the money, but NOT for spending the money. If we are concerned with the deficit, then we should be cutting spending or raising taxes, NOT firing the people who collect the money. Studies suggest that for every dollar spent by the IRS, the agency returns between $5 and $12 to our government coffers.

Here is a simple example. We (as a society) have elected a Congress who might agree (for example) to build a toll road. Why would we build the toll road and then fire the toll collectors?

A 2024 report by the nonpartisan Government Accountability Office saw that the IRS found savings of $13,000 for every additional hour spent auditing the tax returns of wealthy taxpayers.  Former IRS Commissioner Danny Werfel told CNBC that the taxes that rich people evade each year amount to more than $150 billion.

Maybe you are unconcerned because you think that you are rich. Think again. According to Bankrate, the average income of the top 1% of earners in the United States was $785,968 in 2022.

Most of us have relatively simple, straightforward tax returns. Not so for the 1%. When I worked, a client asked me to assess the financial condition of a real estate mogul, reportedly a billionaire. They piled his documents a foot high on a ten-foot long table. I quickly saw that the mogul had lots of assets and lots of liabilities, but it required a team of accountants to determine his net worth.

(You might assume that someone who owns a $1 billion building has a $1 billion net worth. This is NOT true if a $2 billion mortgage secures the property. He might have NEGATIVE net worth. Often, the top 1% employ complicated financial structures and sophisticated tax avoidance strategies, which require equally-sophisticated auditing and monitoring systems.)

Many of the IRS cuts involve audit staffs, and many of these staffs audit rich people. No wonder, the top 1% want to fire the people who collect the money and shift the tax burden to the rest of us.

Can We Really Replace the Income Tax with Tariffs?

Recently, new Commerce Secretary Howard Lutnick told Fox News that Trump’s goal is to “abolish” the IRS. “Donald Trump announced the External Revenue Service, and his goal is very simple: to abolish the Internal Revenue Service and let all the outsiders pay,” Lutnick said. Likely, Trump wants to replace the income tax with tariffs. The government used to be funded this way.

Of course, the US government was last funded by tariffs over 100 years ago. This was before commercial air travel, global supply chains, or the Panama Canal made international trade easier. Also, this was before the air traffic control system and the interstate highway system and the Medicaid or Medicare or SNAP or Social Security programs, which increased the scale of public services.

The Economic Times described the idea of replacing incomes tax with tariffs as “incredible.” In other words, it is “too extraordinary and improbable to be believed.”

The US raises about $3 trillion each year from income taxes. The US also imports around $3 trillion worth of goods annually. This is mathematical, NOT philosophical. According to the paper:

“So that means tariffs would have to be at least 100% on all imported goods for tariffs to replace income taxes, said Torsten Slok, chief economist at Apollo Global Management, in a note to investors last month as per a CNN report.

“The challenge is that it is unclear what will happen to sales if all imported products double in price,” Slok said. “Given higher prices result in lower sales, it may require as much as 200% tariffs on all imported goods for the total tariff revenue to replace income taxes.”

Inconceivable? Sadly not. Coincidentally, the President just threatened to impose 200% tariffs on European wines.

What Did Jesus Say about Paying Taxes?

Jesus befriended tax collectors, and he urged his followers to “Render to Caesar the things that are Caesar’s.” He did NOT urge them to “Cheat on your taxes” or  to “Fire the tax collectors.”

Also, he did NOT urge them to enact a “reverse Robin Hood” spending plan of taking from the poor to give to the rich. Jesus advised the rich, young man to sell his possessions to give to the poor. Also, he advised against storing riches, and warned that it would be difficult for a rich person to enter heaven.

No one likes taxes, but if we want to defend our country, deliver our mail, maintain our highways, monitor our borders, open our national parks, send our Medicare and social security checks, and staff our airports, then taxes are necessary.

Recently, the nonpartisan Congressional Budget Office (CBO) admitted that Republicans can NOT meet their spending targets without making significant cuts to Medicare or Medicaid benefits. This is mathematical, NOT philosophical, too. Once again, Congress would be funding tax cuts for the 1% by cutting benefits to the other 99% of us, including the oldest and the poorest of us.

We can disagree about how big government should be and how well government is doing its job. Hopefully, we will NOT disagree that if we decide (as a society) to collect taxes or to spend money, then we should do it effectively and efficiently. How many businesses destroy the cash register and fire the cashiers?

Should we really fire the people who collect the money?

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