What’s the tax gap, and how do we close it?
Mar 23, 2021
Episode 395

What’s the tax gap, and how do we close it?

It's trillions in uncollected taxes from the wealthiest Americans. Today, we look at how we got here and what the IRS can do to stop it.

Tax season is here, albiet delayed a bit.

Extending the federal filing deadline to May 17 is just the latest wrinkle in a bizarre year for the IRS, which has been given responsibility for distributing direct payments to Americans, along with some much-needed cash of its own after years of cuts.

“You could say it’s a Band-Aid to help the IRS get through the day, but it really needs reconstructive surgery,” said Samantha Jacoby, senior tax analyst with the Center on Budget and Policy Priorities.

Experts like Jacoby say investing in more staff and better technology for the IRS brings big returns, potentially as high as 7 to 1, according to the agency’s commissioner. At issue is the tax gap — the difference between what Americans owe and what they actually pay.

New research shows that the top 1% of Americans underreport their income by more than 20%, and the government could raise trillions more over time by collecting on it. No hikes — just enforcing the tax code as it stands.

On today’s show, we’re diving into the tax gap. Jacoby walks us through how the wealthiest Americans hide their money, the incentive structures that got us to this point and why 2021 is a great year to start addressing the problem.

Later, we’ll hear from listeners about “jabs” as a verb, robot voices and the politics of the March Madness pool.

When you’re done listening, tell your Echo device to “make me smart” for our daily explainers. This week we’ve got Oprah Winfrey, Equal Pay Day and Beatles economics. Also, don’t forget to subscribe to our newsletter! You can find the latest issue here.

Here are links to everything we talked about on the show today:

None of us is as smart as all of us.

No matter how bananapants your day is, “Make Me Smart” is here to help you through it all— 5 days a week.

It’s never just a one-way conversation. Your questions, reactions, and donations are a vital part of the show. And we’re grateful for every single one.

Donate any amount to become a Marketplace Investor and help make us smarter (and make us smile!) every day.

The team

Marissa Cabrera Senior Producer
Bridget Bodnar Senior Producer
Tony Wagner Digital Producer