No Income Tax? What Would Happen?

What would happen if, somehow, the income tax was suddenly and deliberately abolished?
A whole lot of chaos, to be sure, but would it collapse the US economy? Would it bring business and industry back into the US? I’m not looking for a lot of “who would pay for this and that” responses.
I think capitalism has a way of straightening things out in the long run.
What do you think?

Since the OP requires speculation, let’s move this over to Great Debates.

General Questions Moderator

Individual income taxes make up about 40% of the federal government’s intake. If you count payroll taxes (FICA), then it’s up to 80%. And if you include corporate income taxes, you’re up to about 90%. The economy would collapse, since it needs a functioning government to operate smoothly.

I’m not sure what you mean by capitalism straightening things out in the end. Capitalism is an economic system. Without a government to enforce laws, you end up like Somalia. For real, this time, not just some strawman attack on libertarian ideas.

Since a working government (assuming we want such a thing) has to get revenue from somewhere, I can picture a dramatic hike in property taxes, which would punish the rural farmer at the expense of the urban apartment-dweller.

No, it would drive business away. It’s just propaganda that low taxes attract business, as many communities have discovered when they gave tax breaks to businesses and saw them go elsewhere anyway. The problem with trying to appeal to businesses with low taxes is that businesses don’t make decisions; the people running them do, and what they want are nice living conditions and amenities for themselves. Things an impoverished, shrunken government will be unable to provide. You’re exhibiting the same “logic” that led to the US occupation to hamstring the Iraqi government under the theory that low taxes and no regulations would cause businesses to flood in and turn Iraq into a free market paradise; it turns out that other things were more important to the people making the decisions, like Iraq being a devastated chaotic hellhole.

Capitalism would address the situation. I predict massive economic growth. Of course, it would be the Canadian economy experiencing this growth as every business that can relocates out of the United States.

Sales taxes. Excise taxes. Government service fees. Tolls. etc. etc. etc.

This kind of “flip a switch” hypothetical is rarely a good thing. As someone who would like to see our country take a more libertarian stand on things, the last thing I’d want to do is “flip a switch” and make it happen. Societies need some level of predictability in order to function properly. I’d like government to have a much smaller footprint than it does, but not tomorrow! Change needs to be slow, manageable, and you need to be able to stop it if it’s obviously causing more problems than it’s solving.

As John Mace pointed out, they are a very small portion of the govt’s intake. You’d have to increase them many times over - and at the same time that the income tax was removed - to survive. In which case, what have you gained?

Ya think? The urban apartment-dweller pays his landlord’s property taxes; taxes go up, rent (if not controlled) goes up.


In most economic times, it’s debatable whether lowering taxes will increase economic activity.

However, today, lowering taxes will not increase economic activity. We have trillions of dollars in cash on the sidelines. If there are any investment opportunities out there, someone would have invested in them. If we lower taxes we’d have even more trillions of dollars piling up.

That’s of course apart from the OP’s dreaded “don’t bother me with who will pay for this and that”. If we lowered expenses enough to cover the gap it would by necessity cut spending on those that fully paid for their benefits. (Which isn’t to say that we don’t need to take a look at the system especially where people get a lot more out of it than they paid in, but that’s a matter of single digits rather than a 40% whack.) These people would no longer have enough money to buy consumer goods, which would hurt economic activity.

If on the other hand we didn’t curb spending by 40%, then that would lead to loss of faith in the stability of the US government, which may be good for ideological anarcho capitalists, but for those interested in actually making money, not so much.

So in addition to not stimulating economic growth in this particular environment, it would lead to massive loss of faith in the US government either by changing the rules on people in the middle of the game, as John Mace alluded to, or by precipitating a debt crisis larger than the current European one.

“Choice”? Only in the sense that you now have the “choice” to avoid income tax by earning no income. No, not even that choice – sales taxes and property taxes are impossible to avoid. (If you buy anything in a store, you are paying the store’s landlord’s property tax, and if that goes up, prices go up.)

Choice as in I choose this road with this toll or that road with that toll. I buy more or less stuff, taking into account sales taxes. I choose to use the government service that has that fee or I use some other way to accomplish the same thing. I pay fees to this fire company to protect my house or that one down the road, with lower fees. Etc. etc.

That sounds like a nightmare. Right now we have the freedom to travel the vast, vast majority of roads in this country, and you view it as an improvement to make us have to stop and think how much we’re going to pay if we drive Route A instead of Route B? You want people to wake up in the middle of the night and wonder if their check cleared so that if their hair dryer goes on the fritz and a fire starts, whether anyone will be obligated to put out the fire for them?

That’s making life harder and more annoying, not better and freer.

You don’t have to. Just pay the tolls on the roads you take if you don’t care about the cost. That’s basically what you’re doing now.

Sure. Like you wake up in the middle of the night and wonder if your check cleared so that your homeowners insurance is valid to pay for the fire. You do that, right?

It’s a lot easier to be a kid, with big daddy/mommy taking care of you. Life is a lot harder and more annoying as an adult.

No, it isn’t. I don’t go through toll lanes when I drive down 99% of the roads in this country. I don’t need to waste gas and time digging quarters out of my change tray. I don’t need to drive around with an RFID device to allow private companies or even the government to track my driving habits should they so choose.

You call that freedom?

No, because my bank takes care of that with my mortgage payment. Fire departments that operate on the “pay to spray” principle are, to put it politely, near-psychopathic bastards: link.

And yet, society doesn’t try to find ways to make life harder for adults… unless one counts the very small segment of society that wants to undo the social contract in order to allow certain people to make more money, or to make life harder for the poor who might not be able to subscribe to a fee-for-service police, fire, and ambulance service.

No, you just pay the “tolls” in taxes. And you have no idea what they cost, either.

Choice is freedom.

When your “choices” are all driven by necessity, there’s no freedom at all involved. And when you are operating out of ignorance there isn’t any freedom either.

The individualism you are pushing just makes people weak and helpless; it doesn’t give them freedom. That’s why the Right pushes individualism so hard; it knows that individualists are helpless, easy prey.

Cecil Adams himself covered this very subject: Do the rich pay very little tax? Wouldn’t a flat tax be fairer? It started out asking about a flat tax, and then someone else asked about not having an income tax at all. Forget roads – who’s gonna pay for the military?