At the IRS, cost-cutting comes with a cost

Summary

Marketplace Morning Report: Episode Summary Title: At the IRS, Cost-Cutting Comes with a Cost
Release Date: February 24, 2025
Host: Marketplace

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Overview

In this episode of Marketplace Morning Report, host Nova Safo presents two significant stories: the extensive staff cuts at the Internal Revenue Service (IRS) under the Trump administration and the broader implications of these reductions on tax enforcement and taxpayer services. Additionally, the report features an insightful segment from Economic Pulse, where Clara Matei, a professor of economics at the University of Tulsa, discusses the need for a more inclusive and human-centered approach to economic analysis.

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IRS Staff Cuts: Impact and Costs

Nova Safo opens the episode by addressing the substantial workforce reductions at the IRS, revealing that over 6,000 employees have been laid off, particularly in the collections and enforcement divisions. These cuts are part of the Trump administration’s broader cost-cutting measures but come with significant repercussions for the agency's efficiency and revenue collection capabilities.

Justin Ho, Marketplace’s reporter, delves deeper into the financial implications of these layoffs through insights from Nathan Hendren, an economics professor at MIT. Hendren elucidates the concept of return on investment (ROI) concerning IRS audits:

"[...] every dollar we spend delivers more than $12 in revenue back to the US Treasury," Hendren states at 00:57.

Hendren explains that while audits on lower-income individuals often result in the IRS breaking even, audits targeting higher-income earners not only recover owed taxes but also encourage better tax compliance in the future. This long-term revenue generation underscores the high ROI of maintaining robust audit operations.

Nina Olson, Executive Director of the Center for Taxpayer Rights, adds another layer to the discussion by highlighting the essential taxpayer services the IRS provides beyond audits:

"Everything from the IRS publishing publications and forms to answering the phones on tax law questions to processing returns," Olson remarks at 01:25.

Olson emphasizes that these services are crucial for ensuring smooth tax processing and resolving taxpayer issues, which in turn supports accurate and timely revenue collection. The reduction in staff is projected to hinder these services, making it more challenging for taxpayers to receive necessary assistance and potentially leading to decreased compliance and increased errors.

Justin Ho summarizes the situation:

"Cutting staff will slow down those services, making it harder for taxpayers to get the help they need," he concludes at 01:54.

The segment underscores the delicate balance between cost-cutting and maintaining effective tax administration, highlighting the potential long-term financial and operational costs of the IRS's workforce reductions.

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NHTSA Layoffs: Autonomous Vehicle Regulation Cuts

Transitioning from tax administration, Nova Safo reports on the National Highway Traffic Safety Administration (NHTSA) announcing layoffs as part of ongoing cost-cutting efforts. While the exact number of affected employees remains unspecified, the Washington Post estimates the cuts to be around 10%. Notably, this includes a significant reduction in the team responsible for regulating autonomous vehicles, raising concerns about the oversight and safety standards in this rapidly evolving sector.

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Economic Pulse: Rethinking Economics with Clara Matei

In the Economic Pulse segment, Clara Matei, a professor of economics at the University of Tulsa and director of the newly established Center for Heterodox Economics, discusses the necessity of redefining economic measurement to better reflect people's lived experiences.

David Brancaccio, Marketplace's host, initiates the conversation by probing the fundamental differences between heterodox and orthodox economic approaches:

"It is absolutely timely to rethink economics in a broader pluralist way so that we're not stuck in abstract and narrow methods that ultimately hide rather than explain what happens in the real world," Matei asserts at 03:13.

Matei argues that traditional economics often marginalizes human experiences and social relations by adhering to rigid, abstract models. She advocates for an economics that centers on social interactions and empowers individuals to have a more significant role in shaping economic systems. This approach aims to address economic injustices that current metrics fail to capture, thereby bridging the gap between economic indicators and people's actual financial well-being.

When challenged on whether this shift could resolve the existing disconnect between positive economic indicators and the public's perception of their economic reality, Matei responds:

"People feel the economic injustices on their own skins, but there's no tool to understand these because the type of economics we're exposed to operates to hide these problems," she explains at 04:44.

Matei emphasizes that for a meaningful transformation in economic policy and education, there needs to be a concerted effort to adopt methodologies that reflect real-world complexities and human factors. She acknowledges the challenges ahead, noting that:

"This is something that is ultimately a political battle," Matei states at 05:51.

Despite the hurdles, Matei remains optimistic about the potential impact of the Center for Heterodox Economics, envisioning it as a model for future academic and institutional change.

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Conclusion

This episode of Marketplace Morning Report adeptly highlights the intricate consequences of government cost-cutting measures, particularly within the IRS and NHTSA, and underscores the importance of reevaluating economic paradigms to better serve society. Through expert interviews and detailed analysis, the report provides listeners with a comprehensive understanding of how fiscal decisions and academic innovations intersect to shape public policy and economic outcomes.

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For more insightful discussions and updates, tune into future episodes of Marketplace Morning Report.

Transcript

[Nova Safo]

Cutting costs comes with a cost For Marketplace I'm NovaSafo in for David Brancaccio. We're continuing to follow reports that the Trump administration has fired more than 6,000 workers at the IRS, many of them in collections and enforcement. Those job cuts come with their own costs. They have to do with what in business is called return on investment, Marketplace's Justin Ho reports.

[Justin Ho]

A few years ago, Nathan Hendren, an economics professor at mit, found that when the IRS audits somebody, it cost the agency roughly six to $7,000 on average. And when it audits people with higher.

[Nathan Hendren]

Incomes, those audits get a little more complicated and we end up spending just over $10,000 on those audits.

[Justin Ho]

But Hendren also looked at how much the IRS receives when it does an audit. Turns out for people on the bottom half of the income spectrum, the IRS pretty much breaks even. And for those with the highest incomes.

[Nathan Hendren]

Every dollar we spend delivers more than $12 in revenue back to the US Treasury, Hendren says.

[Justin Ho]

That's not only because audits pull in lost revenue. It's also because of what happens next.

[Nathan Hendren]

Those people end up changing their ways going forward, and you deliver back a lot more revenue to the government, even in the future years.

[Justin Ho]

Another factor pushing up the IRS return on investment the basic taxpayer services it provides, says Nina Olson, executive director of the center for Taxpayer Rights.

[Nina Olson]

Everything from the IRS publishing publications and forms to answering the phones on tax law questions to processing returns.

[Justin Ho]

Olson says those services help the IRS take in revenue by helping taxpayers who have questions or unique situations or even a dispute over a tax return.

[Nina Olson]

And people need to be there to work through those issues so the return can go its merry way into the system to be processed, olson says.

[Justin Ho]

Cutting staff will slow down those services, making it harder for taxpayers to get the help they need. I'm Justin Ho for Marketplace.

[Nova Safo]

There's news this morning that the National Highway Traffic Safety Administration is laying off an unspecified number of workers as part of the ongoing cost cutting efforts. The Washington Post pegs the cuts at 10% and says they include reducing by half a team tasked with regulating autonomous vehicles. Now to the marketplace. Economic Pulse Regular checkups from a range of perspectives. Today we hear from Clara Matei, professor of economics at the University of Tulsa in Oklahoma. She's also director of the newly established center for Heterodox Economics, which aims to reimagine how we measure economic progress, prioritizing people's experiences. She spoke with my Marketplace colleague David Brancaccio.

[David Brancaccio]

Heterodox. I had to look it up again, unorthodox. What's the mistake orthodox approaches to economics were making? That needs new thinking from your team.

[Clara Matei]

It is absolutely timely to rethink economics in a broader pluralist way so that we're not stuck in abstract and narrow methods that ultimately hide rather than explain what happens in the real world.

[David Brancaccio]

One remedy for abstraction is to bring it down to earth and put people into the equation. Is there a greater focus on the human experience and the type of work that your center wants to do?

[Clara Matei]

The idea is that economics is not a hard science. It has been presented this way to give absolute authorities to experts that ultimately a lot of times justify economic systems that exclude people from decision making. And as I worked in my own research, I showed that actually neoclassical economics a lot of times supports authoritarian regimes. So instead, the idea is that economics is based on social relations, that people are at the center of the economy, and thus we need to understand these social relations as something that can evolve, and thus we can have a greater say in what our economy should look like.

[David Brancaccio]

The orthodox economic indicators had been showing the US economy was in many ways fine and dandy. Many people didn't feel it was fine and dandy. So do you think some of your approaches to putting the experience of real people back into the analysis would resolve, I hate to use a big 50 cent word, but resolve the dichotomy economic indicators saying things are great, people saying not so great?

[Clara Matei]

This is exactly the point. People feel the economic injustices on their own skins, but there's no tool to understand these because the type of economics we're exposed to operates to hide these problems. So the center is trying to say, if we want to be academics and intellectuals and grow a generation of students that can really tackle issues for people, we need a different approach to economics. The agenda of economics has to be inspired by what people feel and live, and so people can be empowered by these tools in order to potentially participate for a better economic system.

[David Brancaccio]

Professor Mate, I don't want to be a spoil sport, but I do have to raise this issue, which is there was a lot of talk like this in 2009 and 2010 after the great financial collapse, that mainstream economics didn't see it coming, that mainstream economics needs new tools, and yet here we are all these years later, and you're forced to innovate again in this space. Do you think it'll stick this time?

[Clara Matei]

That's the real challenge. This is something that is ultimately a political battle. Academic battles are political battles because they are based on resources and the will of institutions. The University of Tulsa has the energy and the courage to give us the resources to start up this institution. We cannot do this alone. But I do think that we can serve as an example that may be able to multiply, in which we say we can be a place of serious, courageous scholarship.

[David Brancaccio]

That's Clara Matei. She's director of the newly established center for Heterodox Economics and a professor of economics at the University of Tulsa. Thank you so much.

[Clara Matei]

Thank you so much for having me.

[Nova Safo]

David Brancaccio with that interview. And I'm Nova Safo with the Marketplace morning Report from apm, American Public Media.