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Jewish World Review April 29, 2004 / 8 Iyar, 5764

Bill Steigerwald

Bill Steigerwald
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Consumer Reports


Rigged for the rich ... 10 minutes with author David Cay Johnston


http://www.NewsAndOpinion.com | David Cay Johnston, my neighbor and co-worker at the Los Angeles Times during the Decade of Greed, is the only guy I've ever played poker with who's won a Pulitzer Prize.

A reporter on taxes and pensions for The New York Times since 1995, Johnston won journalism's highest award in 2001 for "his penetrating and enterprising reporting that exposed loopholes and inequities in the U.S. tax code."

Anyone who ever worked with Johnston knew he'd win a Pulitzer someday. A dogged investigative reporter, he specialized in causing trouble for powerful institutions. Two deserved victims of his digging during the 1980s were the LAPD and the United Way.

Now, Johnston, 55, has written "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich — and Cheat Everybody Else," a "non-ideological" expose of our unfair tax system that Johnston proudly points out has been reviewed favorably by liberals, conservatives and libertarians. (Click HERE to purchase. Sales help fund JWR.) I talked to him Wednesday by telephone from his home in Rochester, N.Y.:

Q: What's so new about the tax system being so horrible? Real conservatives and libertarians have been saying that for eons.

A: Well, the tax system isn't what anybody of any political stripe thinks it is — on any level. Congress has passed a whole host of laws, many of them with no coverage by the news media, that show that our national myth — that we heavily tax those at the very top to support those in the middle class and at the bottom — is not true. And the government data show that it is not true.

Q: Who are the biggest beneficiaries of the tax system as it really is?

A: In different ways we are all beneficiaries of the tax system, because without the tax system, there is no America. That said, what I show in the book is that the people at the very top are having an enormous increase in income and their tax burden is falling, while everybody else, whose income is either stagnant or falling, is facing a rising tax burden.

Let me give you some specific numbers: If you plot the average increase in income from 1970 to 2000, adjusted for inflation, for the bottom 99 percent of Americans, that's $2,700 — or less than a $100-a-year raise. If you plot that, it's 1 inch high. The increase in income for the super rich is 625 feet high.

Now, the next number, to give meaning to that: In 1970, the super rich — that's the top 1/100th of 1 percent, today about 28,000 people — had 1 percent of all the income in America. And the poorest third of Americans had more than 10 percent of all the income. By 2000, they were equal. The best-off 28,000 men, women and children in America have as much income as the bottom 96 million.

Q: This is income or wealth?

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A: Income. I'm talking only about income. This is from IRS data. I'll give you one last set of numbers. In 1993, the top 400 taxpayers paid 30 cents on the dollar in federal income tax. At the end of the Clinton administration, they were paying a little over 22 cents out of each dollar. I calculate under the Bush tax cuts that they are paying less than 18 cents today.

What happened to everybody else? Between 1993 and 2000, the average tax paid by everybody else rose from 13 cents out of each dollar of income to 15 cents. It's a little below 15 cents now.

Q: For you to discover this, what did it take?

A: Everything that's in the book took nine years of work. The numbers I just gave you took reading of the government data and the analyses of it that have been done by economists. But the fact that the super super-rich — the top 400 — have had a 40 percent reduction in their tax burden and that 28,000 people have as much income as the bottom 96 million, are the two biggest news items in the book.

Q: Are you practicing class warfare here — beating up on rich and trying to make friends among the poor?

A: You're more likely to find weapons of mass destruction in Iraq than a line in my book calling for higher taxes on anybody.

Q: What is your definition of a good tax system?

A: A good tax system flows from the economic order. It greases the wheels of commerce. It rewards strivers. It promotes widespread prosperity and savings. And promotes, as the Constitution says, "the general welfare."

Our tax system cuts across the economic order, disrupts commerce, destroys jobs, hurts families, discourages investments in education, because it was designed for a bygone era, when we had a national industrial wage economy. Now we live in an assets/services/global world.

Q: You're not saying the tax system should be used to redistribute wealth?

A: No, what I say in the book is that the tax system is a socialist redistribution system — up. I show how it literally takes money from the pockets of middle-class and upper-middle-class people — particularly those making $50,000 to $41 million a year — and funnels it to the super rich.

Q: Critics of our quote-unquote "progressive" tax system say that its complexity and its loopholes are there specifically to allow Congress to tinker with the tax code so that politicians can reward their friends and punish their enemies — and that any system controlled by politicians is almost bound to be gamed by the rich and powerful.

A: First of all, it's not a progressive system. It's a "bubble system," where the super rich pay a lower tax burden. That said, the rich and powerful in any democracy have more influence than anyone else, only when everyone else is busy worrying about who Jennifer Lopez is sleeping with and who Donald Trump is going to fire next, instead of engaging in the business of being citizens.

As tens of millions of Americans have withdrawn from politics, the power of the anti-tax among the political donor class has grown, because no one is pushing back. It's perfectly appropriate for very rich people to exercise their constitutional right to seek tax relief. The problem is, the middle class and the upper-middle class have stopped participating in a serious way in politics.

Q: Is your book an argument for a simple flat tax or a national sales tax, like the "Fair Tax"?

A: I don't recommend any tax. I do tell people that the flat tax and retail sales tax are not what they think they are. The flat tax grows out of a European socialist idea, and under it Steve Forbes would never pay taxes again for the rest of his life. Under a national retail sales tax, which an environmentalist would love, consumption would fall sharply. People would keep their cars until they had 400,000 miles on them. You have to keep receipts on everything you buy, because the tax police will be looking for black marketeers.

Q: So what is your solution to fixing the federal tax systems as it exists in all its glory and inequity now?

A: I don't have any magic solution. But what we are getting now is not tax reform. What we are getting now is a system that is tearing our country apart. And I don't ever want there to see a high school civics book that begins a chapter with the words, "The United States of America was ... ." That's what's going to happen if we don't fix our tax system.


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JWR contributor Bill Steigerwald is an associate editor and columnist at the Pittsburgh Tribune-Review. Comment by clicking here.

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© 2002, Bill Steigerwald