April 15 is fast receding, and most of us hope that we will not have to think much about taxes until next year. But David Cay Johnston has written a book that gives us good reason to think about them again - and perhaps will change the way we look at them forever.
Perfectly Legal sets out to reveal "the secret of how the tax system in America is being rigged to benefit the super rich," creating a seismic shift of the tax burden onto the middle and upper-middle classes. Passionate and highly readable, this well-documented and carefully argued book by a Pulitzer prize-winning New York Times reporter describes a whole industry devoted to tax avoidance by the richest Americans, resulting in soaring incomes for the richest 1%.
Most of this, moreover, is "perfectly legal" because, the author argues, Congress has created a taxation system that richly rewards wealthy individuals and large corporations, who in turn contribute to congressional campaigns. It must be said that Johnston is even-handed in his politics, blaming Democrats and Republicans equally.
The book enumerates the ways that many billions of tax dollars are legally diverted from the U.S. Treasury. Devilishly complex accounting schemes are offered by regiments of tax accountants and lawyers, whose services are available to those who can afford, say, $1 million for a "treasure map where X marks the tax-free spot." The astronomical salaries executives have come to expect are governed by special rules, which allow tax payments to be deferred for decades, earning untaxed interest all the while. Taxpayers subsidize any number of executive perks, like the 9000 corporate jets flying today. If the estate tax is fully repealed, it will allow the richest Americans to hold on to an extra $250 billion in the first year alone. Suggesting that "the patriotism issue needs to take a back seat," accounting firms market offshore holdings and tax havens.
Johnston shows that these billions must then be taken from somewhere else, in order to pay for public services, government projects, and the military. And so if your income comes from wages - which cannot be hidden or diverted - rather than investments, it's you who are increasingly footing the bill. Except for the burgeoning deficit, for which your children are on the hook. And if you think it's bad now, wait until the alternative minimum tax (which Johnston calls a "nasty surprise" for the middle and upper middle class) hits 35.6 million households in 2010 - up from 1.3 million in 2000.
Going beyond the title, Johnston exposes the enormous amount of blatantly illegal tax cheating that also occurs, practically under the nose of a besieged and under-funded IRS, which lost much of its ability to collect unpaid taxes after the IRS Reform Act of 1998. The descriptions of its sadly outdated equipment and pitiable working conditions are almost shocking. Congress is also responsible for the fact that the auditing power left to the IRS targets the working poor far more than corporations or the affluent, even though the potential of recovery from the latter is much greater.
Reading this book, one understands better how the American Revolution got its start - with the outrage of the unfairly taxed average citizen. This state of affairs is not new: also available here at our business library is a well-thumbed volume entitled The Rape of the Taxpayer: Why You Pay More While the Rich Pay Less by Philip Stern, published in 1973. When you consider that since 1970, the top ½ of 1% have seen their share of the national income increase 5-fold, the reforms that Johnston advocates in his conclusion take on a new urgency. "If we continue to rob average Americans of time and the opportunity to save so that those with five mansions can own seven," he says, our democratic system may be at stake.
Writing for Quick Cash: Turn Your Way With Words into Real Money
by Loriann Hoff Oberlin. American Management Association, 2004.
The End of Work: the Decline of the Global Labor Force and the Dawn of the Post-Market Era, updated for the 21st century
by Jeremy Rifkin. Penguin, 2004.
Contact the business librarians, who also answer questions about business, money, and work, at (412) 281-7141 or at www.carnegielibrary.org/locations/downtown/ contact.cfm.