Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else

After reading Johnston's Free Lunch, I picked up a copy of this book and was again impressed with his research. The book details a number of ways that our government, under the influence of both Democrats and Republicans, has made life easier on the super-rich and tougher on everyone else. He details a loss of many billions of dollars of revenue, all belonging to the already-wealthy, leaving the rest of us to take up the burdens of keeping the government running. The techniques range from tax loopholes to interference with the IRS. Most of the politicians touting "fiscal conservatism" need to be turned over a patriotic knee and soundly spanked with a copy of this book.

After reading Johnston’s subsequent Free Lunch, I assumed I’d love this book. Here Johnston condenses his experience as an NYT tax journalist in order to pinpoint the big issues – circa 2003 – that enable the top percent to pay less tax than their minimum wage and middling counterparts. As startling as this story is, I found the authors investigations of the innumerable devices, shelters, and strategies granted by Congress, and the IRS, and exploited by clever lawyers to be, well, taxing. The breakdown of corporate subsidies in Free Lunch was far more accessible and interesting. Here there’s necessarily too many numbers, statistics and the like that tends to harsh one’s buzz. Important information, no doubt, but none of it show more as engaging as the anecdote told by my ex-hockey player friend Sara that when a tooth gets knocked out, dip it in milk and reinsert within two hours – and it’ll take! On top of this there’s the occasional overlapping of different studies that, while telling the same overall story statistically, the author picks and chooses random particulars from to shore up different arguments. It made my head spin like an unfortunate Evan Williams incident a couple decades back.

Part of my ambivalence may revolve around the fact that this was written six or seven years ago and I’m not sure how certain forecasts (many up to 2010) have played out. What is the status of the Alternative Minimum Tax that’s supposed to negatively affect most of us by next year? I dunno if it’s even still on the books. Probably is. I should do further research, but as this is my second tax book of late, I don’t think so. And what is this pension thing that the Government supposedly regulates and “requires”? Who gets those?!? I thought that was just for municipal employees and 50s sitcom dads.

Most conspicuously, of course, is that this was written before our latest recession. He writes from a vantage point after the 2000-2001 downturn. I personally felt that one to be a huge pain in the ass, but everyone within our current context seems to have forgotten it existed. And indeed the issues around the dot.com bust do seem almost quaint in comparison to our “Great Depression 2009.” Somehow the government now has an endless supply of (taxpayer) billions to pour into a domestic auto industry that, if I recall correctly, has been an indisputable embarrassment my whole lifetime – and I’m no spring chicken. No doubt our children who won’t be driving a GM product and certainly won’t be working in their long-shuttered factories will be paying for this questionable subsidy. Or the Feds can just pilfer the remainder of our Social Security to cover it (perhaps the most alarming fact covered by this book is how taxpayers between the early 70s and 90s paid such a high rate of SS taxes that the system was supposed be easily supported, basically forever…had our elected officials not stolen almost all of the funds for other purposes).

If there’s one important point to take away from Johnston’s narrative is that our pent-up angst towards the IRS is perhaps a bit misguided. Congress (and our executive leaders) are the main villains here and the IRS – not 100% blameless of course - is mostly just operating with the crappy hand dealt to them from the Capitol. Startling cuts in enforcement and funding, coupled with performance quotas led to that bizarre situation where the lowest level of taxpayers get audited (and penalized) at a significantly higher rate than big corporations and billionaires. Johnston’s exposé is yet another example of how the US appears to be on the express train to becoming the butt of Mexican and Kazakhstanian jokes. show less

A very readable and understandable description of how our tax policy works.

The Wikipedia article about the book:

Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Rich–and Cheat Everybody Else (ISBN 1-59184-019-8) is a book by Pulitzer Prize-winning New York Times reporter David Cay Johnston that argues that the American tax system has been tilted to supplement the incomes and extravagant lifestyles of the wealthy (which he dubs the "Political Donor Class"). According to Johnston, while politicians can claim that money does not buy influence, they cannot deny that money buys access.

Johnston argues the tax system squeezes the middle class, which creates a widening income gap that threatens the stability of the country. Workers are being cheated out of their retirement plans while show more failed CEOs walk away with hundreds of millions (the "golden parachute"). Some corporations avoid paying any federal income tax at all. The difference in taxable income (here zero) from GAAP income reported to financial analysts and SEC statements to investors has been called the book-tax gap in the tax policy literature by scholars, the Joint Committee on Taxation and the IRS. Corporate CEOs take vacations using corporate jets, while paying less money than ordinary people pay for a middle seat in coach seating and then sticking others with most of the bill. The working poor are seven times more likely to be audited by the IRS than anyone else. The book claims the IRS has become so weak that even when it was handed complete banking records detailing massive tax fraud by 1,600 people, only four percent were prosecuted. show less