Everything You Know About Taxes is Wrong

Pulitzer Prize-winning reporter David Cay Johnston talks about the retooling of the tax code to serve the very rich at the expense of the middle

Investigative reporter David Cay Johnston has spent his entire, storied career trying to prove that there’s a better way to write about topics most reporters find too tricky or complex or too dull to interest readers. As a reporter for the Los Angeles Times, he was among the first to expose mismanagement, inefficiency, and brutality in the Los Angeles Police Department. He went on to rout out the misuse of charitable funds at the United Way in Los Angeles and Washington, D.C., and to document New Jersey’s fraudulent system of casino regulation, among other stories.

In 1995, tired of reading stories by other reporters who covered the U.S. tax system by writing about what politicians said instead of how the system actually operates, he talked the New York Times into hiring him. In the 10 years since, Johnston has demonstrated, amply and relentlessly, that there is indeed a better way to cover taxes. His stories have forced the closing of so many dodges and loopholes and the creation of so many new laws and regulations that he’s been nicknamed “the de facto chief tax enforcement officer of the United States." He won the 2001 Pulitzer Prize for beat reporting, and has been a Pulitzer finalist three other times since 2000.

Last year, Johnston published the fruits of all that prize-winning reporting in his book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else. A bestseller and the winner of a 2004 Investigative Reporters and Editors award, the book documents how, over the last three decades, the tax system has been twisted to subsidize the wealthiest 1 percent of the country. Johnston recently talked to City Pages about the book, the damage this reverse Robin Hood scheme is doing to the other 99 percent of Americans, and about the perils posed to democracy by the growing inequalities of the system.

City Pages: Since the publication of “Perfectly Legal,” you’ve been talking to people throughout the country about taxes, a notoriously complex topic. Do people understand what you have to say?

David Cay Johnston: They grasp the principles of it, yes, and the fundamental point that we are shifting the burden of taxes. People bring their own lens to these things, and a great deal of what people think about taxes, whether they are right, left, populist, reactionary, radical, is based on their viewpoint. And one of the clearest effects is that I’ve had people of all different political views, after reading the book, write to me and say that that caused them to open their eyes and see things in a new way, which is what I set out to do.

And because the book is not ideological, it is factual, different people come to different interpretations of the book, of what it means to them. Not everyone agrees, for example, that it’s a bad thing to shift the burden of taxes. And that’s why in the paperback I emphasize something I should have in the hardback, and that’s that the most conservative principle in western civilization is taxation based on the ability to pay. Because that is the principle that led to the creation of Athenian democracy. Plato, Aristotle, Adam Smith, the father of capitalism, David Ricardo, John Locke, John Stuart Mill--every single one of the worldly philosophers has concluded over 2,500 years that taxes should be based on the ability to pay. I meet all sorts of people who think that Marx thought this up, or FDR, and they are very ahistorical about it.

CP: You cite a number of the super-rich who agree that taxes should be based on one’s ability to pay.

Johnston: Sure. Lots of very wealthy people understand. I mean, the stuff I have about Warren Buffett [saying] nobody in their right mind would pick our Olympic teams based on the sons of gold medal winners in previous Olympics. But without an estate tax, we’re saying we’re going to have control of our economic resources determined by who your parents were.

Now, there are also a significant number of wealthy people who either don’t want to pay taxes, want to pay a lot less, and who are promoting an agenda that is entirely self-interested. And I don’t have any problem with self-interest. I think that self-interest is a very motivating force. But that’s why you have social controls on self-interest. The model of the cancer cell is growth for growth’s sake, no matter what. And you don’t want growth for growth’s sake, you want growth for society’s sake.

CP: It would seem that at a certain point, impoverishing the middle class would begin to backfire, to work against the super rich. How far do you think our political leaders and the politically active super rich you describe as the donor class can go with this shift of wealth?

Johnston: I argue at the very end of the book that in the long run, the super-rich, top one-hundredth of one percent, will be poorer if everybody else is. Because the value of your assets is going to be less if the society around you is not healthy and is not able to buy your products. Just look at the amount of money we’re spending on security in all different forms, not just federal spending, but police departments, building security, etc. that’s dead weight. It’s a kind of tax on the economy. And in a healthier society you would have a lot less crime, a lot less money spent on security, and you’d be a lot better off.

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