Of course it will kill the income tax especially in the US where taxes are crazy and illegal. It could make the end of the US government and the beginning of high unemployment which will be bad for everybody. There will be a lot of chaos I think.
The taxes are even higher in Europe than in the U.S. so bitcoin could benefit more to those that live in places where there are even higher taxes than the norm, the problem is the EU has already noticed this and are trying to crack down bitcoin users and their stored coins.
I think at this point the only way of getting to know who owns what in Bitcoin, is when they start forcing exchanges to release user information. Only then governments can actually find people with large amounts of coins that try to hide it from their local tax agency. It's the big fishes that they are after. I just hope exchanges will refuse these requests but I don't think they have much chances of winning against the governments.
We need more faster decentraliz exchang to prevent this. Very soon.