We speak with Pulitizer Prize-winning New York Times reporter David Cay Johnston about his new book Perfectly Legal. Johnston argues that most Americans are "being duped into supplementing the incomes and extravagant lifestyles of the rich and powerful." [includes rush transcript]
The income gap in the United States is greater than many imagine —- the top 29,000 Americans have as much income as the bottom 96 million. And in recent years tax burden for the richest Americans -—- especially corporations — has been falling sharply while everyone else’s has risen.
A study by the General Accounting Office found that almost two-thirds of America’s corporations paid no federal income taxes during the late 1990’s, when corporate profits were soaring. Nine out of 10 companies paid less than the equivalent of 5 percent of their total income.
A new book by Pulitizer Prize winning New York Times reporter David Cay Johnston argues that most Americans are "being duped into supplementing the incomes and extravagant lifestyles of the rich and powerful."
The book is titled "Perfectly Legal: The Covert Campaign To Rig Our Tax System to Benefit The Super Rich — And Cheat Everybody Else." Last month Johnston was awarded top honors at the 2003 Investigative Reporters and Editors Awards for the book.
AMY GOODMAN: I began by asking David Cay Johnston about just how the tax system works.
DAVID CAY JOHNSTON: Most Americans, no matter how much they make, assume that people who make more pay a larger share in income taxes. That is a progressive tax system. We don’t have that. If you made $60,000 last year, you paid a larger share of your income in income taxes and social security taxes to the government than people who made more than 10 million a year. That top group’s average income by the way, was $25.6 million. If you made $400,000, that’s a lot of money, but if you made $400,000, you paid a larger share of your income just in income taxes than people who made more than $10 million. That is people who made in a week what you worked for all year. We are shifting the burden of taxes steadily off the richest people in America and onto people who work. The very top taxpayers, the 400 highest income taxpayers in America, their taxes have gone from 30 cents on the dollar, which doesn’t strike me as an onerous burden, in 1993, down to 22 cents on the dollar at the end of the Clinton administration and now under the bush administration, they’re down to 17.5 cents on the dollar. Everybody else in America during those year, their taxes went up from 13 cents on the dollar overall to 15.
AMY GOODMAN: Who is doing this?
DAVID CAY JOHNSTON: Both parties are doing this. They’re doing it because they’re listening to a narrow group of very well to do people who do not want to pay taxes, who do not want to share in the expenses of the country that has made them rich. And they want you to pay their taxes. Those are the people who get access. Every politician will say you to, you can’t buy my vote. Generally, that’s true. The problem is that you and I don’t have the real access, and the proof that Congress is thinking about the super rich came two days after 9/11. The House Republican leadership introduced ten bills to address 9/11. One of them was a tax bill. What did it do? It gave estate tax relief, which did nothing for the firefighters and police officers and army sergeants at their desk and nurses and the busboy at the World Trade Center. All of those people that were killed. A tiny handful of people, but that’s what Congress thought these people needed, was estate tax relief even though 99% wouldn’t pay estate taxes.
AMY GOODMAN: It’s slipping it in as a very opportune time.
DAVID CAY JOHNSTON: That was just for this group of people. That was just for this group of people, but it’s indicative of what Congress is thinking about, what’s on the minds of Congress are not the concerns of ordinary Americans who want to educate their children, you know, who want to engage in enjoying life. Their concerns are about the super rich and within the super rich, those who are very anti-tax.
AMY GOODMAN: Can you talk about the CEO of Coca-Cola?
DAVID CAY JOHNSTON: Oh, sure. He’s indicative of a major problem that many workers don’t understand is affect affecting them. During the years that Roberto Aswada built a billion dollar fortune. The way he did that is having a serious effect on ordinary workers. Senior executives have unlimited 401(k) plans. There’s a special law for them. Ordinary Americans are allowed to save up to $13,000 or if you are may age, $16,000. Let’s say that you are a CEO of a big company and you get paid $105 million. You make 5 million in cash and pay the taxes. That’s about $1.7 million. Your effective tax rate is less than 2% of your income. The other 100 million stays on deposit with the company. The company invests it on your behalf and you take the money when you are ready to retire. The problem is the company doesn’t get to take a deduction for that $100 million. It has to pay the government $35 million in taxes. While every year, senior executives add to these accounts and there are lots of them, not just the CEO.
DAVID CAY JOHNSTON: Soon the company comes to the workers and says, you know, Amy, we know you have had this health care plan but we just can’t afford it anymore. It’s too expensive. Or that pension plan you were counting on, we are going to freeze it when you are 52, so you will only get a third of the benefit that you were expecting at retirement because we can’t afford it. It’s the competitive pressure from the guys in the executive suite going into the pay pool and gouging it. It’s not from the people down the street. Congress could stop this in a minute. And furthermore, raise revenue by saying there’s no more deferrals.
AMY GOODMAN: Can you talk about Dick Cheney and his deferred payment plan from Halliburton, the fact that this man is a sitting Vice President of the United States, and continues to be paid off by —
DAVID CAY JOHNSTON: He cashed out of his plan except for his pension, which would not make him in the position any different than anyone else.
AMY GOODMAN: But is he getting an annual paycheck from Halliburton still to this day?
DAVID CAY JOHNSTON: Oh, he will when he turns 65. I’m not sure if he is 65 years old yet. Actually, that doesn’t trouble me. He’s cut his other ties to the company. What should trouble people is here is a guy in a short period of running this company built up a $36 million cash-out plan when he left, and set up, I forget exactly how many, but many, many offshore vehicles that were designed basically to avoid taxes. Almost every big corporation in America now is using a variety of devices from renting a mailbox in Bermuda to moving their intellectual property offshore to avoid taxes. We just had a report from the investigative arm of Congress, the general accounting office that 60% of American corporations paid no corporate income tax between 1996 and 2000.
AMY GOODMAN: Say that again.
DAVID CAY JOHNSTON: 60% of large corporations paid no federal corporate income tax from 1996 to 2000. That five-year period.
AMY GOODMAN: How does that work? What do you mean they just get a foreign post office box?
DAVID CAY JOHNSTON: Well, two years ago I broke the story to the New York Times about companies going to Bermuda. Ingersol-rand went to Bermuda. They’re the people that built the jackhammer that built Mt. Rushmore. The Bermuda government in return for a fee of $27 allows them to be a Bermuda company prohibited from doing business in Bermuda. They send one executive to Barbados and under a treaty that dates to the Cold War, the company is then able to take its profits in the US, and could avert them into tax deductible expenses, send them to Barbados, and put the money wherever they want in the world and stop paying US income taxes on the profits. In the process, they shift the burden of government off of them and onto you. So, they get all of the benefits of being here, the courts to enforce the contracts, the military to protect their assets but you and I get the bill.
AMY GOODMAN: Enron.
DAVID CAY JOHNSTON: Yes.
AMY GOODMAN: Can you tell us about Enron, and taxes?
DAVID CAY JOHNSTON: Well, Enron was an extreme example of taxes. Their tax department was turned into a profit center. The people in the tax department were expected to turn up a profit. A little known fact here, Enron, although people think of it as a Texas company, it is actually an Oregon Public Utility Holding Company. It bought Portland’s General Electric. Since 1997, the people and businesses in Portland have paid about $620 million in their electric rates that were supposed to pay the state and federal income taxes of General Electric. Portland General Electric shipped the money upstairs to Enron. Enron paid no taxes. Imagine how rich could you get if you could buy a business which the law says that you will collect the income taxes from your corporation as a customer as a specific amount of money and you get to pocket it. That’s what Enron did.
AMY GOODMAN: We are talking to David Cay Johnston, and Perfectly Legal is his book. As you researched this book, what most surprised you?
DAVID CAY JOHNSTON: Oh, that the middle class and upper middle class literally subsidized the wealthiest people in America. If you are making $50,000 a year the federal government will take about $2,000 from you this year, or as President Bush would say, $2,000 of your money, and funnel it to the super rich through overtaxing you on social security. Americans are paying in advance for their social security benefits up to the limit on social security incomes. That money is being used to finance tax cuts for the super rich, who in 10 or 15 or 20 years will have to pay higher taxes to get that money back. So, the time value of about 1.8 trillion dollar is being transferred from the middle class to the super rich. The other thing that astonished me is the stealthy way that the Bush tax cuts were financed. The Bush tax cuts include a half trillion dollar increase on middle-class and upper middle-class Americans. Particularly families with children. You’re 30 times more likely to pay the stealth tax increase if you have children than if you are single, which is against the rhetoric that you hear from the Administration. Under the law that the Administration relied on, if you become ill or your spouse or child does, and you spend more than 7.5% of your income trying to keep your loved one or yourself alive, Congress taxes you for doing that. It increases your income taxes. It uses that money to finance tax cuts for the super rich. It’s just outrageous.
AMY GOODMAN: David Cay Johnston, author of Perfectly Legal, Pulitzer Prize winning New York Times reporter.