He has said he'd do away with the IRS, end the income tax and repeal the sixteenth amendment. Some people find this incredible. Where would the government get the money it needs to defend the nation, enforce contracts and protect property rights? How much is that? A summary review of the 2006 federal accounts makes it look like the critics are right and Ron Paul is exaggerating his ability if not his desire to do away with the IRS in his first week of office.

SPENDING
$     2,715	2006 total federal spending		Cut	Spend
$         64	executive and legislative		75%	$         16	Cut 3/4ths
$         14	tax collection		100%	0	Eliminate
$       549	defense		75%	137	Bring troops home
$         43	police, fire, courts		50%	22	Cut DEA, DHS, leave courts
$         30	transportation( air, water, highway)		0%	30	No change at first
$         14	space		0%	14	No change at first
$         16	economic and labor affairs		100%	0	Eliminate
$         34	agriculture		100%	0	Eliminate subsidies
$         12	energy		90%	1	Eliminate subsidies
$       680	health		0%	680	No change at first
$         71	education		100%	0	Eliminate
$       142	disability		0%	142	No change at first
$       474	retirement		0%	474	No change at first
$       126	welfare		0%	126	No change at first
$         35	unemployment		50%	18	Less needed
$         76	other income security		50%	38	Less needed
$       277	interest on debt		0%	277	No change at first
$         59	other		50%	29
				$     2,004	total
				$       711	savings
INCOME
$     1,053	Income tax
$         99	Prodn & Imports
$       373	Corporate
$       901	FICA & Med (payroll taxes)
$     2,495	Total Income
$         43	Net Investment
$       263	Deficit

So there is really too much locked in entitlement spending to totally eliminate the income tax. At best you could get rid of 70% of the income tax without having to impact entitlement spending. And that still implies deficit spending. A 50% reduction would be possible without deficit spending. It looks like we are going to need some type of income tax, flat tax or national sales tax to come up with $500 billion per year until we can start reducing entitlement spending.

As an alternative, a flat tax of $275 per person would raise $100 billion and could be collected from the states constitutionally. A 2.5% national sales tax would produce $150 billion. A $1.00  per gallon gasoline tax would produce $180 billion annually, at least until America gets the message and lightens up on gasoline consumption. None of these taxes would require the record keeping and invasion of privacy inherent in the income tax.

At some point reductions in entitlement benefits would be necessary to totally eliminate the federal income tax, but even that would leave the 15% payroll tax in place. Wouldn't it work better if we implemented a flat tax or a national sales tax as a transition strategy? From his writings it appears his plan is to cut spending first and so drastically that the Congress makes the cuts in taxes when he presents it with big surpluses. He has also said in debates that we couldn't eliminate the taxes unless we also eliminated the entitlement programs.

Looking at the list of expenditures above the entitlement that makes up the bulk of the spending is healthcare. Dealing with this $2 trillion industry, is where we need to put lots of emphasis.