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

Johnston: President Bush wanted a $1.8 trillion tax cut. Congress would only give him $1.3. How do you fit $1.8 trillion into a $1.3 trillion bag? You do it by a stealth tax increase on the middle class and the upper middle class. By integrating into the regular income tax a parallel universe of taxes called the Alternative Minimum tax. Which appears as only a single line on your tax return. You’d have to look on your tax form to see whether it’s line 42 or 43, but if a figure appears in that line, it means that part of your Bush tax cuts is being taken away so that the richest people in America can get 100 percent of their Bush tax cuts. If you are married, have two or more children and make $75,000-$100,000 you are almost certainly losing part of your Bush tax cuts. Overall that group will lose 42 percent of their tax cuts to the stealth tax.

But worse, under the Alternative Minimum tax if you, your spouse or your child gets a serious illness like cancer and you have medical bills that are more than 7.5 percent of your income, Congress raises your taxes, through this stealth tax, and explicitly uses that money to finance the tax cuts for the super rich. So it is the tax policy of the United States to tax sick middle class people so that rich people can pay less.

More than 100 members of Congress since I exposed this have denounced it, but nobody’s fixed it, and President Bush’s spokesman has said that that is what he was elected to do.

CP: Given some of the fixes cited in your book that actually made things worse, perhaps we should be scared to allow them to fix it for fear it will open another tributary that will trickle up.

Johnston: Well, keeping the bad out of fear of the worse is, I think, not good policy. If the news media would return to its roots of skeptical questioning, we wouldn’t have things like this in the law. But you know there is a whole movement in this country to attack honest journalists who point out what’s simply on the record if it disagrees with the line of the party currently in power. There’s a whole industry now to formulate these dishonest attacks, and even when subsequent news events come along to show that the attacks were baseless there’s no withdrawals or apologies by the people who make these attacks.

I’ve been the subject of some of these, where people have fabricated quotes and attributed them to me, they have misquoted what I said, and they have denied in writing what they themselves have written to denounce me in national publications. So I’ve had some personal experience with this. And the utter lack of integrity of these people is just mind-boggling.

But we will not get better tax policy until people have a better understanding of it. Despite all of the rhetoric by both political parties about family friendly tax policy, the fact is that you are 30 times more likely to lose part of your Bush tax cut if you are married and have children than if you are single. Now, I am not arguing here that single people should pay more in taxes or that married people with children should pay less. What I’m arguing is that the rhetoric of the politicians and the reality of the tax code bear no resemblance to one another.

CP: So how is it that you are able to do the investigative reporting you do?

Johnston: I became a journalist when I was 17 years old because it was a way up out of poverty. My dad was a 100 percent disabled veteran of WWII, so you can imagine the circumstances I grew up under. One of the very first stories I wrote was an investigative piece and I’ve been doing investigative work my entire life. I try to look at big issues that I don’t think are being well covered and then cover them. So years ago I did utility regulation and health care economics and the Los Angeles Police Department and charities as hard news.

Taxes was just one of the big issues I looked at and said, boy this is just not well covered at all. At the beginning, except for the managing editor of the New York Times at the time, the guy who brought me in, nobody thought this was an idea worthy of attention. And he had doubts as to whether I could do what I said I was going to do. But you know, a good journalist, all you have to do is take a subject and learn the principles of it, and the mechanics of it pretty much follow through.

CP: Another complex topic you render understandable in your book is how Social Security has been used to underwrite cuts for the wealthiest taxpayers. Given how hard Bush leaned on Social Security to finance those tax cuts during his first term, is his plan to privatize it going to come back to haunt him?

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