What would happen to federal revenue if the IRS were abolished?
Executive summary
Abolishing the Internal Revenue Service without a credible, revenue-equivalent replacement would sharply reduce federal receipts by eliminating the primary machinery that collects income, payroll, estate and gift taxes, forcing either dramatic spending cuts or new, likely inferior revenue sources; advocates propose a national sales tax administered by states, but experts warn of redistributional, administrative, and enforcement shortfalls [1] [2] [3]. Congressional and independent analyses show that weakening enforcement and funding for the IRS increases the “tax gap” and lowers net revenue over time, and any practical abolition would require constitutional and statutory upheaval that creates months-to-years of fiscal uncertainty [4] [1] [5].
1. How federal revenue is tied to the IRS today and what its abolition would immediately remove
The IRS is the central agent that collects individual income, payroll, corporate, estate and gift taxes and administers rules and withholding that deliver the bulk of federal revenue; repealing subtitle A of the Internal Revenue Code and abolishing the IRS — proposals contained in bills like the FairTax Act — would formally eliminate those statutory sources and the agency that enforces them [1]. The practical effect of removing that collecting apparatus would not suddenly erase the fiscal need for money; it would remove a proven, complex system that currently secures a large share of receipts and enforces compliance through audits, withholding and reporting [6] [7].
2. Revenue loss, the tax gap and enforcement dynamics
Independent budget analysts and the Congressional Budget Office find that reductions in IRS funding and enforcement lead to measurable revenue shortfalls because voluntary compliance erodes and taxpayers adapt to reduce detection; CBO models show diminishing returns to enforcement and that cuts to IRS resources materially lower revenues over time [4]. Real-world budget cuts and staffing reductions have already been projected to impair processing and compliance functions, providing a live demonstration that shrinking the agency reduces near-term receipts and raises the unpaid “tax gap” [8] [9] [4].
3. The FairTax and the promise of a sales-tax replacement — practical and distributional problems
Proposals to abolish income taxes typically pair abolition with a national retail sales tax (the FairTax), which would repeal the income tax and shift collection to states and retailers; supporters tout simplicity, but critics — including tax-policy researchers — argue the plan shifts burdens onto low- and middle-income households and relies on states to administer a revenue stream they now largely do not collect for federal purposes [1] [10] [3]. Analysts contend that many states lack capacity or incentive to collect massive federally-directed sales taxes, and that a national sales tax can be regressive unless paired with rebates or complex offsets — undermining the simplicity argument [3] [2].
4. Legal and political obstacles: undoing the 16th Amendment and substitute revenue ideas
A genuine abolition of the income tax would likely require repealing or neutralizing the 16th Amendment and sweeping statutory change; the FairTax bill explicitly calls for that step, making the pathway both constitutionally and politically fraught [1]. Other suggested replacements, like returning to tariff dominance or relying on excises, would raise far less revenue than the present system according to policy analysts and would import new macroeconomic and distributional effects [5] [11].
5. Transition risks, administrative reality and likely long-term outcome
Practitioners warn that even renaming or reorganizing the IRS doesn’t eliminate the need for a federal revenue-collection agency; states and private actors would be asked to take on unprecedented duties, creating enforcement gaps, legal fights and months or years of revenue volatility that could force emergency borrowing or cuts to entitlements tied to payroll taxes [2] [5]. The combination of enforcement erosion, taxpayer adaptation, and administrative friction would almost certainly produce a material decline in net federal revenue until a replacement system — if attainable — was fully implemented [4] [8].
6. Bottom line
Abolishing the IRS without a fully specified, revenue-equivalent replacement would sharply reduce federal receipts through the immediate loss of income and payroll collections and the longer-term expansion of the tax gap; replacing that revenue with a national sales tax is politically possible but administratively difficult and distributionally controversial, and independent analyses warn that enforcement and funding changes to the IRS already demonstrate how fragile federal revenue is to dismantling its collection apparatus [1] [4] [3].