Fixing the System — The Tax Gap, Complexity, and Why Enforcement Isn’t “Sexy” (Jens Heycke + Corey Smith)

If you’ve been following the Brockman–Smith saga, you already know this: the biggest tax crimes don’t just happen in the shadows. They happen in the cracks of a system—one that’s either outdated… or working exactly as designed. In this episode, Dominique sits down again with Jens Heycke, author of Death, Taxes, and Turduckens, and Corey Smith, longtime DOJ tax prosecutor, to zoom out from the scandal and talk about the bigger issue: why schemes like this are possible—and what it would actually take to prevent the next one. This is a reform episode, but it’s not partisan. It’s about incentives, enforcement, complexity, and the uncomfortable math of who can afford to fight the IRS—and who can’t. What You’ll Hear in This Episode A clear explanation of the tax gap—what it is and what it includes (underreported income, offshore concealment, false deductions, fake entities) Why Jens says the U.S. tax gap is ~$447B/year for personal income taxes alone—and over $600B when corporate tax is included The “other gap” nobody talks about: legal avoidance (preferential rates and rules like carried interest) and why it’s so hard to define or measure Jens’s estimate that “legal loopholes” could be 2–3x the tax gap (depending on definitions)—potentially trillions The shocking double-cost problem: ~$447B lost to underpayment/evasion ~another ~$447B spent on compliance (recordkeeping, filing, paid help) Together: roughly $1 trillion in economic drag Corey’s take on why simplification and enforcement matter—but offshore secrecy is still the biggest practical obstacle The reform Corey wanted for decades: treat fraudulent offshore entities differently than legitimate privacy-protected accounts Why reforms often stall: they aren’t “sexy,” and politicians don’t see a win in championing tax enforcement Jens’s argument that tax compliance is regressive: smaller businesses spend far more (as a % of income) on compliance than billionaires How complexity fuels regressiveness: more code = more advantage for people who can afford experts A fascinating comparison: Estonia’s flat tax system and tiny tax code—versus the U.S. “industry” built around navigating complexity Jens’s behavioral economics idea: a Top Taxpayer List—turning ego and competition into voluntary compliance A hard truth about deterrence: in 2023, only 363 people were convicted of tax fraud—making prosecution feel rare and non-threatening Corey’s view on what deters best: high-profile cases against the biggest players (because the public pays attention) How to get the public to care: big cases, big headlines, then use that moment to educate Complexity is a feature, not a bug… for the people who can afford it. The more complicated the code, the more it rewards scale. Guests Jens Heycke — Author of Death, Taxes, and Turduckens, focused on the incentives and failures that make billion-dollar evasion possible. Corey Smith — Former DOJ tax prosecutor, bringing decades of frontline experience on what works (and what doesn’t) in enforcement.