Kristen:
Not *all* services you listed would be privatized. Some would stay in the Fed and some the states would be responsible for. For example, states can decide to pay for education and healthcare if they choose. Ron Paul's stance is basically that the Fed has no authority to run most of these programs (by article 10 of the Constitution), not necessarily that they should not exist.
Income tax doesn't pay for as much as you might think. Roads, for example, are paid for with taxes on gasoline and before the income tax there was a corporate excise tax to fund the military. With his plans more money would also stay in individual states than there is right now.