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What Would Actually Happen if Ted Cruz Abolished the IRS?

Let's get rid of the dumb old IRS! Also, let's make pizza healthy, and make puppies never get old!
Composite of photos by Wikimedia users Gage Skidmore, AgnosticPreachersKid, JamesAlan1986

At last night's debate, presidential candidate Ted Cruz repeatedly drove home one of his signature campaign promises: The abolition of the IRS. The Republican Senator from Texas told the crowd last night in Milwaukee, Wisconsin that the tax code has more words in it than the Bible, "and none of them are as good." For better words, viewers were urged to go to (Not, which is still a joke site).


Read: A Brief History of People Attacking the IRS

"Imagine a simple flat tax that lets every American fill out his or her taxes on a postcard. IMAGINE ABOLISHING THE IRS!" says a landing page on Cruz's campaign website. Which admittedly does sound like it would be much easier than how taxes currently work.

The more detailed page on Cruz's tax plan says the IRS is such a twisted, bloated organization that it must be abolished—"cannot simply be downsized"—and has to be "replaced." He hasn't stated what he wants to replace it with, though, and it's hard to imagine mailing off a tax postcard every April knowing its validity isn't going to be checked.

Like this license plate? — Senator Ted Cruz (@SenTedCruz)July 8, 2013

So to find out what the situation might be after President Cruz banishes all the tax collectors, we called up Columbia Law School professor Michael Graetz, a former deputy assistant secretary for tax policy at the US Treasury and one of the country's leading experts in tax policy. Graetz has already voiced skepticism about the IRS—hell, he even wrote a book outlining his own tax plan with a picture of an IRS 1040 form being burned on the cover. He seemed like he might be of one mind with Ted Cruz (spoiler: he wasn't).

VICE: To start with, how is your tax plan different from Ted Cruz's?
Michael Graetz: It's not a flat tax. But the Tax Policy Center has estimated that [my plan] eliminates 111 million returns, and takes 175 million or more people out of [paying] the income tax, so they would only pay tax at the cash registers, basically. It would essentially be a sales tax that they would have to pay, and it would be all they have to pay.


So you want the IRS out of people's lives too?
They would never have to deal with the IRS. As I understand what Cruz has proposed, he's proposed a business-level tax, so businesses have to pay tax under his system. So who's gonna collect the tax from the businesses?

That's what I'm asking you. Haven't people ever gamed this out before?
Has anybody ever thought seriously about getting rid of the IRS? No. Other than people running for president. Steve Forbes I think was the first—in the 1990s he ran for president—and he said he was going to eliminate the IRS, and it would be "RIP." People who run for president on the Republican side have, from time to time, said they were going to get rid of the IRS, but you can't collect taxes without a tax collector. You can call it what you want, and you can change the name of it. And you can revise the tax system in a way that reduces what it is that the IRS is doing. Ted Cruz isn't fooling himself. He knows that somebody's got to collect the taxes.

What's the worst case scenario with no IRS?
Tell a guy who's running a business—a farmer, or an individual that's got a proprietorship—to file a tax return, but nobody's going to be there to get it? And to just put the check in the mail? And there are going to be no audits of anybody? And there's going to be no information reporting—so I suppose no wage reporting, and no reports from the banks about investment income—and no collection? He'll just send in a note saying "I'd like to pay you but I can't," and then [he won't] hear from anybody because there's no tax collector.


But is he wrong about the IRS being bloated and bureaucratic?
Look, we already believe that we have about $300 billion a year or more in taxes that are not collected with the IRS in its current iteration. If he thinks it's too big, it's missing $300 billion of collections. That will just multiply. Taxes will become strictly voluntary payments. And the question is, who's going to volunteer?

Not me.
There you go! And even if you have only a business level tax, you have to collect it.

Is there something else in place that could collect taxes though?
A lot of states piggyback now on the federal system. What happens to state tax collections under his system? Are the states going to collect the taxes and send it to the federal government? Is that the plan? I don't know what the plan is.

Do states have smaller versions of the IRS?
They have their own internal revenue departments, but they rely on the IRS. If the IRS audits your tax return, and they find that you owe a certain amount of tax, the state will also use the IRS's information to collect the income tax if they've got one. [Ted Cruz's home state of] Texas doesn't have one, but Texas has a sales tax, so isn't there a tax administrator?

I just googled it, and yes there is. The Texas Comptroller of Public Accounts.
There has to be! Otherwise they wouldn't be able to collect sales taxes. So somebody's got to collect tax, and somebody's got to audit businesses. There's been enough publicity about businesses not paying taxes. The idea that you're going to eliminate the IRS? It could be a Service of Internal Revenue Collections or something. It could be "CIRC." It could have different initials.

Do you think Ted Cruz really believes he can get rid of the IRS?
He obviously believes the American people believe you can collect taxes without a tax authority. The American people don't believe that. The American people aren't taking that seriously. They're too smart for that.

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