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

We live in a society in which we have prospered so much and changed so much over the last half century that it’s had a fundamental effect on democracy. Neil Postman, who died recently, wrote a really terrific book called “Amusing Ourselves to Death: Public Discourse in the Age of Show Business,” in which he argued that without even realizing it we are giving up democracy because we are so busy with all of the entertainment possibilities in front of us. You know, television, sports, etc. In his really important book “Bowling Alone: The Collapse and Revival of American Community,” the Harvard professor Robert Putnam argues that we are no longer engaged in the same kind of social interaction we used to be. Instead of bowling in leagues, people go bowling alone is his model example.

Back when one third of workers belonged to unions, 80 percent of workers benefited from that. Because there were many employers who paid union or even above-union wages to keep the union out. And if you were a manager at General Motors or some big company like that, even though you are not in the union your pay was set by the union. And now the union is back to maybe one in eight private sector jobs—some small number like that, you can look up the statistics. What’s happened? Well, wages have been falling. America is the only country in the world that is pursuing a low-wage strategy.

CP: Another favor to the donor class.

Johnston: That’s exactly right. We’ve lowered taxes on the rich, and to the extent that the rich own businesses we’ve lowered labor costs. In 1970 the bottom third of Americans [as a group] had 10 times as much income as the super rich, that’s the top one one-hundredth of one percent. By the year 2000, they were equal. The super rich’s income had exploded, and the bottom third’s income had fallen. So literally, the rich are getting richer and the poor are getting poorer.

Now, if a rising tide were lifting all boats, this wouldn’t be a concern. That is if everyone was getting better. But they’re not better off. We’re spending more and more money dealing with social pathologies, with people who don’t have a sense that they have any future through education and hard work. We are seeing the super rich separate themselves from the rest of us. They fly in private jets, they live in gated communities, they have police departments that stop people that don’t have new cars driving down the street.

I can remember literally being stopped by the cops when I was a reporter for the LA Times driving in Beverly Hills because of my car. Little Richard tells the story of running out of his house to his mailbox. In Beverly Hills that mailboxes are all on one side of the street so the mail man just goes down one side of the street; they don’t go to the door and put the mail in. so he ran to the mailbox in his flamboyant pajamas one morning he was literally arrested by the police who wouldn’t believe that he lived there, on that street. He’s told this story on national television.

Combine that with the tax cuts, which have come at a time when we are awash in capital and no demand. For 25 years we have toyed with this idea of supply side economics? Well we now have an enormous supply of capital and a shortage of demand. And a lot of the money that’s been freed up by the government’s tax cuts is being invested offshore. Now, if you look at the data right now, about how many jobs are going offshore, you can reasonably say it’s not so many jobs. It’s not that big a deal. If you look at how much money was being taken to offshore tax havens in 1990, that’s 15 years ago, you’d say, “Ah, it’s one percent, who cares?” Today it’s 17 percent at least. When we get the data for this year it may in fact be over 20. You have to look at the trend line, and the trend line is that investment capital is moving out of the country.

There are major U.S. corporations that have a negative net worth in the United States, but that have a substantial net worth. These are U.S. companies. They have all of their net worth offshore. Jobs go where the investment goes. And at the same time, because we’ve narrowed the tax base, you know the amount of money and the kinds of money we’re taxing has been cut back since 1986 and the tax rates have been lowered, we have less money for all sorts of things.

I don’t know if you are aware of this but there is a growing argument being made among the radical right to end public education because, like social security and like Medicare, that’s socialism. If you want your child to be educated you should pay for it directly out of your own pocket, goes the argument. On the one hand you can say, “Oh this is a fringe movement and there’s no broad political support.” Well, nobody would have thought you could have the kind of tax cut or social security changes Bush is proposing 15 years ago. I find it frustrating going to buy items at a store where the clerks can’t even operate a cash register with numbers on it, so they have to put picture symbols on them. Imagine a world that’s that illiterate.

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