Why and How To Fire 42,000 IRS Agents…
The true scandal of current American fiscal governance needs be commented on. Or, better still, hammered upon good and hard.
To wit, the American electorate apparently doesn’t give a shit about runaway government spending because as a practical matter the overwhelming share of voters don’t pay the taxes to fund it. Aside from social insurance taxes, which most payroll taxpayers still believe to be a premium for a government-sponsored retirement annuity, the bottom 90% of households fund only a tiny fraction of Federal spending.
That’s right. The bottom 145 million US income tax filers (out of 161 million total filers) currently pay just $500 billion in Federal income taxes. That’s barely $3,500 per return and even then approximately 50 million of these returns owe zero taxes or actually get tax credit refunds for taxes they haven’t paid!
In the grand scheme of things, therefore, direct tax payments by the bottom 90% of income tax filers amounted to only 12% of Federal spending in FY 2024 outside of social insurance trust funds. To wit, Federal spending ex-social insurance was $4.82 trillion in FY 2024 and upwards of $4.3 trillion of this was paid for by the top 10% of income tax payers, corporations, minor excise and import duty payers and borrowing—of which there was $1.8 trillion of the latter in FY 2024.
Needless to say, the top 10% got soaked good and hard, paying $1.538 trillion of Federal income taxes and as a practical matter nearly the entirety of the $530 billion corporate income tax, which in today’s globally competitive world gets mainly pushed back to shareholders. In effect, $2.1 trillion or 43% of Federal spending outside of social insurance is paid for by the top 10%.
Needless to say, that’s just plain unfair and economically counter-productive, too. The current marginal rate for top bracket taxpayers is 40.8% when you include the Medicare surcharge and the so-called NIIT (net investment income tax). That’s already extortionate because in a free society there is no way that the government should grab 40% of anyone’s income—especially since that’s only the Federal take, which can easily grow to 50% after state and local income and property taxes.
Moreover, when the TCJA act of 2017 expires at year-end 2025, the top marginal rate will jump to truly confiscatory rate of 43.4%, and well beyond 50% in most states after state and local levies are layered on.
In short, America desperately needs to raise more revenues to fund even a downsized government after the DOGE treatment. But the income tax is more than tapped out, and 90% of the public is getting a hall pass on the latter.
Accordingly, what needs to happen is a sweeping reform, which would shift the Federal revenue base overwhelmingly to consumption and sales tax levies. That would ensure that the economic damage is limited and that 100% of the voting public would have skin in the game and feel the pain of spending via commensurate tax extractions. Then they might well demand fiscal sanity from their elected representatives in a manner that rarely occurs under the current defective fiscal regime.
We will elaborate more on the needed sweeping tax base reform in Part 2, but suffice it here to say that not only is the current Federal income tax grossly unfair to the productive classes and tapped out as a practical matter of revenue generation, but it is also unadministratable. Accordingly, more than half of the massive 100,000 man IRS bureaucracy could be eliminated even without a sales/consumption tax replacement, while upwards of 90% could be eliminated if the income tax were mainly substituted by a sales tax.
Needless to say, we are not talking about just bureaucratic nannies and meddlers in the case of the current 83,000 IRS employees—-a figure which is heading for 102,000 by the end of the decade under the still unrepealed Biden revenue grab. In the ranks of what amounts to a small city’s worth of Federal bureaucrats are also a goodly phalanx of tax cops, gumshoes, enforcement lawyers and tax filing proctologists.
So the question recurs: What has generated this massive bureaucracy in the first place, and what fundamental policy shifts are needed to cut the IRS headcount by 50% (42,00 jobs) and upwards of $5 billion of compensation and other operating costs?
The answer starts with calling the IRS’ bluff. When you look at the actual tax filing data it is damn evident that the Deep State bureaucrats are faking mightily when it comes to their massive staffing demands. We discovered the scam way back in our OMB days while jousting with the Treasury Department over the sacred cows in its budget. But nothing is different 40-years later—so here’s the smoking gun that points the way.
In the most recent complete tax-year (2022) there were 161.336 million individual income tax returns filed, which reported $14.83 trillion of Adjusted Gross Income (AGI). But fully 146.045 million of those filings, which reported $10.025 trillion in AGI, did not claim any itemized deductions.
Moreover, among these non-itemizers about 97 million owed taxes and used the standard deduction to calculate taxable income and the amount owed before tax credits. And another 49 million standard deduction users owed no Federal income taxes at all due to low taxable income or child and other tax credits.
In short, you absolutely do not need a giant IRS bureaucracy—and, indeed, hardly any labor-intensive operation at all—to administer the IRS code in the case of 92% of annual tax filings and the overwhelming share of US income taxpayers. That’s because virtually all the relevant data for completion of these non-itemized filings is machine readable and available on other IRS reporting systems, as shown below.
For want of doubt, here is the entirety of the tax computation for a couple earning wages at the US median income of $80,000, using the $13,850 standard deduction for a joint return and claiming two $2,000 child tax credits. The fact is, with today’s technology 99.999% of the work of processing, examining and adjusting (if necessary) non-itemized tax returns of this
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LewRockwell.com is a libertarian website that publishes articles, essays, and blog posts advocating for minimal government, free markets, and individual liberty. The site was founded by Lew Rockwell, an American libertarian political commentator, activist, and former congressional staffer. The website often features content that is critical of mainstream politics, state intervention, and foreign policy, among other topics. It is a platform frequently used to disseminate Austrian economics, a school of economic thought that is popular among some libertarians.
