No, the IRS cannot garnish 100% of your income.
Before I begin, obviously, IANAL. Some of my sources will come from law advice websites that also have that disclaimer.
There is a process that the IRS will follow before any garnishment of wages will take place. According to Nolo, in an article titled "Can the IRS garnish my wages for taxes?", they explain the process that the IRS goes through.
The IRS will not start garnishing your wages without giving you notice and an opportunity to make payment arrangements. But, unlike most other creditors, it does not have to first use[sic] you and get a judgment in order to start the garnishment process.
To start the process, the IRS must send you a written notice stating the amount you owe. The notice must itemize all of the charges (tax, penalties, and interest) and give you a date by which you must pay the balance in full.
If you don't comply with the demand for payment within the stated time, the IRS will then explore how it may most effectively force you to pay the tax. This may include seizing your assets, placing liens on your property, taking future refunds, and garnishing your wages.
So to start, the IRS will attempt to reach a resolution with the taxpayer before forcibly seizing property, assessing leins, etc. Writing a check for the missing amount, setting up a payment plan, or negotiating a settlement will forgo the IRS collection process, of which wage garnishment is a part.
However, even if you do not come to a settlement with the IRS, they are required to leave a certain amount of your wages.
The IRS will take as much as it can and leave you with an amount that the tax code says is necessary for you to pay for basic living necessities. The amount that you can keep corresponds to the number of exemptions you claim for tax purposes.
The article links to this datasheet provided by the IRS which details "an individual's income that is exempt from a notice of levy used to collect delinquent tax" for 2017. Note that these protections have been in place since at least 1977.
The source for the story linked within the Karl Hess Wikipedia page seems to be from the book "We Won’t Pay!: A Tax Resistance Reader" by Robert W. McGee and David M. Gross. The relevant section is from pages 437 to 438, reproduced here.
About 10 years ago, back in the days when I worked for Republican politicians battling Democratic presidents, constant harassment by the Internal Revenue Service caused me to snap my twig and just stop paying taxes altogether. I won't go into the tedious details, but I will note that I announced my decision to the I.R.S. by sending along a copy of the Declaration of Independence. By return mail, my tax collector informed me that a lien would be placed against all my property, that they would take every cent, literally 100 percent, of every penny I might earn and that they could discern.
I asked, then, how they would handle it if I decided to just barter for a living. They had a ready answer: "If you get some turnips for your work, we'll take the turnips."
There are a number of things to note in this story
- The IRS supposedly was communicating with Mr. Hess via mail. However, despite paper records of this correspondence, there seems to be no proof offered besides the word of Mr. Hess.
- The IRS never told Mr. Hess that he "no longer would be permitted to possess money"
- With the attached IRS form above, the IRS is not permitted to put a lien on 100% of a person's income, and written correspondence would be proof of this threat.
- There is no discussion detailed in the book where Mr. Hess tells the IRS "without money he could not buy food and would soon die".
- The whole incident was started because Mr. Hess decided he did not want to pay taxes anymore after being audited. Mr. Hess, in the book, believed that he was audited in retaliation for "his service to a losing presidential candidate." Note that Mr. Hess was not an advisor, or a close aide, but a speechwriter for Barry Goldwater. Also note that the audit rate around that time, according to this article, was 5.6% of all Americans.
- There is no indication that, even if all of the above were true, that the IRS actually garnished 100% of his wages.