- David Cay Johnston
former New York Times reporter who now writes for tax.com. He is the author of several books, including Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).
In their coverage of Wisconsin Gov. Scott Walker’s attempt to undermine public workers’ unions, many journalists have parroted Walker’s claim that unionized state workers get their pensions "subsidized" by the state. We speak with investigative reporter and Pulitzer Prize-winner David Cay Johnston, who counters the assertion that pensions are costing taxpayers by pointing out that the workers themselves contribute 100 percent in deferred compensation. Johnson’s latest article is called, "Really Bad Reporting in Wisconsin: Who 'Contributes' to Public Workers’ Pensions?" [includes rush transcript]
JUAN GONZALEZ: Labor protests are continuing across the country as Republican lawmakers attempt to push through legislation aimed at crushing collective bargaining rights. While covering the unfolding events in Wisconsin over the last two weeks, many media outlets have repeatedly aired Governor Scott Walker’s claim that state workers should contribute more to healthcare and pension costs.
GOV. SCOTT WALKER: But most importantly, there are five-and-a-half million people in this state, taxpayers who, by and large, are sacrificing in their own jobs in the private sector, paying much more than the 5.8 percent for pension and the 12.6 percent for healthcare I’m asking for, in fact, many cases two or three times that amount. They’ve made tough sacrifices to balance the budgets in their communities and their homes and in their businesses. I think it is realistic that we make — we need to make sure that, as loud as the voices are in the Capitol, we don’t let them overpower the voices of the taxpayers I was elected to represent and elected to get the job done, which is balancing this budget.
JUAN GONZALEZ: Many journalists have parroted Walker’s claim that unionized state workers get their pensions "subsidized" by the state. However, investigative reporter and Pulitzer Prize-winner David Cay Johnston recently exposed the deeply flawed media coverage of Walker’s bill by challenging his core assertion. Johnston’s piece for Tax.com is called "Really Bad Reporting in Wisconsin: Who 'Contributes' to Public Workers’ Pensions?" In the piece, Johnston counters the myth that workers’ pensions are costing taxpayers by pointing out that workers themselves contribute 100 percent in deferred compensation.
AMY GOODMAN: David Cay Johnston joins us now from Rochester, New York.
Welcome to Demcracy Now!, former New York Times reporter, Pulitzer Prize winner, author of several books, including Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). So, why don’t you demystify what the reporting has been? Where are the lies? Where are the untruths, the half-truths?
DAVID CAY JOHNSTON: Well, Amy, here’s the fundamental key point. And I have to tell you, from the hundreds and hundreds of emails I’ve gotten and the hundreds of blogs that have taken this up, many Americans don’t seem to get this. All of your compensation is earned. It’s not just your cash wage. If you work for a private employer and you get a paid vacation, that’s not a gift from your employer. You earned it. They don’t give that paid vacation to some Joe walking down the street. And what the Governor has done is confuse internal accounting, which has no economic substance to it, with the economic substance. These are negotiated contracts. And how the money flows, whether it goes through the worker’s paycheck and then to the pension and then to the insurance company or it goes directly to the medical insurance company or the pension plan, is irrelevant to the total cost.
Now, there’s a perfectly legitimate issue: are teachers and police detectives and fisheries biologists paid too much money in Wisconsin? I don’t know the answer to that, and I didn’t offer any insights onto that point. But the fundamental important point here is, the workers earned this. And so, the Governor really wants to cut their wages. And instead of saying, "I want to cut the wages of these people," he has used this false argument. And it’s let loose — my column has — an enormous amount of vitriol against teachers and police officers and how they’re all parasites. And it’s astonishing to me how successful he’s been in demagoguing this.
JUAN GONZALEZ: But yet, several polls that have come out in recent days — Wall Street Journal/NBC and New York Times/CBS — both say that at least the majority of Americans don’t believe that attacks on collective bargaining or that even that a large group of Americans, I think about 40 percent, don’t believe that public workers are overpaid. Yet, the minorities are ones — apparently are the ones that are raising the biggest ruckus over this issue.
DAVID CAY JOHNSTON: Exactly right, Juan. And, you know, we have settled the law that you have a right to collectively bargain. And to those people who pose as conservatives or libertarians and want to get rid of the unions, here’s what they’re arguing. And these are people, remember, who say they don’t like big government. They want each individual seeking a job with the state to negotiate with the big government. Somehow that just isn’t coherent philosophy. And I’m not the least bit surprised that, overwhelmingly, the public feels people should be able to bargain.
You know, it was when we had roughly a third of workers in the private sector in unions that people had higher pay. We’ve now got a 30-year period where 90 percent of Americans are making one penny more for every dollar they made in 1980. And in the last 10 years, my column at Tax.com this morning points out, average wages have fallen, median wages have fallen, government income tax revenues are down a third, one-third, from the end of the Clinton administration. So, we have lots of misinformation out there that’s upsetting people.
JUAN GONZALEZ: I’d like to ask you also about this issue, the general assault on pensions that has been occurring across the country. Wisconsin is one example. You correctly point out that their pension fund is a not in bad shape, whereas others in other states are deeply troubled in terms of being able to meet their obligations. But the problem has been largely that over the last 20 years many of these — especially over the last 10 years — many of these pension funds have not increased in value as a result of the problems in the stock market, isn’t it? I mean, first the dotcom crash and then, obviously, the home mortgage and the economic crisis of '98, ’99, so that many of them have lost value, and that the root problem of the inability of some of these pension funds to pay their benefits is a result of the stock market more than anything else, isn't it?
DAVID CAY JOHNSTON: Well, yes. But the stock market being down, I contend, is a result of tax policy, that it is these tax cuts that are making us poor. But Juan, there’s a very interesting pattern here. Social Security has dedicated funding. It has a surplus of over $2 trillion in it. The Republicans keep trying to make people think it’s the cause of the deficit. The Wisconsin pension is 99.7 percent funded. By the alternative measure used, it’s more than 90 percent funded. And it’s under attack. How interesting that the best-financed government programs, the ones that provide benefits to ordinary working people, are the ones that are being attacked by creating this impression, this false impression, that they are the cause of the problem.
You know, in the U.S. last year, states and local governments gave a least $70 billion to corporations. Here in western New York, where I live, one of the counties gave Verizon, effectively, over $600 million to create 200 jobs that will pay, I expect, about $50,000 on average. That’s crazy! That’s just — that’s over $3 million per job. Yahoo! got a deal at over $2 million per job. Alcoa has a deal for cheap electricity from the public that’s way beyond the wages of the workers. These are massive transfers of money from you and me and the audience in this show to the already wealthy, because they’re not running their businesses well enough to make profits on their own. So why do we have massive subsidies and welfare for these very large corporations and attack well-funded government programs?
AMY GOODMAN: David Cay Johnston, I want to ask you about this issue of corporate taxes, in recent comments made by former Minnesota governor Tim Pawlenty, the likely 2012 Republican presidential contender. On Saturday, he was interviewed by Lee Fang of the website ThinkProgress.org.
LEE FANG: Governor, today liberals are demonstrating all over the country in what CBS has called a liberal version of the Tea Party. Their main complaint is that a lot of corporations aren’t paying their fair share. For example, Bank of America in 2009 paid nothing in corporate income taxes. Same with ExxonMobil, GE and a lot of other big corporations. Do you think corporations like Bank of America should pay their fair share? What are your thoughts on that?
TIM PAWLENTY: I think, actually, the corporate tax rate in Minnesota and in the country is too high. And one of the things, I think, we could and should do for our country —
LEE FANG: You think zero is too high, with Bank of America paying nothing?
TIM PAWLENTY: We have the highest corporate tax rate, or one of them, in the OECD nations —
LEE FANG: But they use loopholes and offshore bank accounts to pay nothing.
TIM PAWLENTY: Well, one of the things I’ve called for is reducing tax rates and looking at exemptions or special deals within the tax code that give certain companies privileges or benefits. I can’t speak to what any individual country — company would get in that regard, but I think one goal or direction for tax reform is to do a — simplify and reduce tax rates and clean out as many of the special deals as possible.
LEE FANG: To be clear, do you think Bank of America pays too much in taxes already?
PAWLENTY AIDE: I think he answered that question.
TIM PAWLENTY: I don’t know firsthand what Bank of America pays in taxes. But I will just say, setting aside Bank of America, the corporate tax rate in the United States of America is too high compared to our competitor nations.
AMY GOODMAN: Probable presidential contender Tim Pawlenty, interviewed by ThinkProgress.org. David Cay Johnston, your response?
DAVID CAY JOHNSTON: Well, corporate income taxes in this country are one-third lower than they were in 2000 — that’s in my column this morning at Tax.com — even though corporate profits are up 60 percent and corporations have almost $2 trillion in cash. They’re approaching $7,000 of cash for every man, woman and child in the United States. They’re not investing this money. They’re not creating jobs. They are hoarding this money that they have pulled out of the economy. It’s one of the reasons we’re in so much trouble.
Now, as to the argument that our tax rate is too high, it is because of all these special favors. The reason the tax code has grown and grown and grown and grown and grown isn’t because of people like you and me and the audience; it’s because of all these favors being bought from politicians. At Tax.com, we have something called the Shelf Project, and eminent authorities in tax have shown how we could raise a trillion dollars a year — that would double the revenue we get, it’s equal to the revenue we get from the individual income tax — by shutting down loopholes and favors for businesses, particularly the oil and gas and pharmaceutical industries. The fact is, the very largest corporations, the ones who are the vast majority of wealth in America, they pay an effective tax rate of about 15 percent of their profits.
And one fundamental truth people need to know, Amy, you can’t have an individual income tax if you don’t have a corporate income tax, because otherwise, wealthy individuals who own businesses will simply live off their business, and the businesses will become storehouses of untaxed wealth. That’s one of the big problems in our tax system. You know, the hedge fund manager John Paulson made $9 billion in the last two years. Unless he chose to take money out of his plan, he pays no taxes on that money. You can make a billion dollars or $5 billion a year in a single year and pay no taxes for years or decades into the future, while working people have their taxes taken out every week.
JUAN GONZALEZ: And you mentioned that corporate taxes are down about 30 percent since 2000, but take us back a few decades —
DAVID CAY JOHNSTON: Revenue.
JUAN GONZALEZ: — further back. How has the tax rate, especially at the high income — personal income level and corporate tax rate, trended in the United States since the ’50s and ’60s?
DAVID CAY JOHNSTON: Well, there’s another column of mine at Tax.com — I’m sorry to sound like an advertising machine — that shows that in — since from 1961 to 2006, the very highest income taxpayers have had their tax burden reduced 60 percent, while everybody else has had a reduction of 20 percent. And it’s the incomes at the top that have exploded. The corporate tax rate used to be 50 percent, now it’s 35 percent.
And let me make what I think is a very important counterintuitive argument. When tax rates are low, I believe there is a sound argument that it destroys jobs. The reason is, you — imagine for a moment you’re a plutocrat, that you’re very, very, very wealthy and you own a business and your spouse wants to buy a Modigliani painting to hang in your living room that costs $85 million. If the tax rate is 50 percent, it’s going to cost $170 million to get that painting. If the tax rate is 15 percent, it only costs $100 million. You’re far more likely to withdraw the $100 million than the $170 [million]. We used to have a high corporate tax rate as a way to coerce and encourage owners of businesses to reinvest in the business, which creates more jobs. We’ve now replaced it with a system that encourages them to withdraw money and not reinvest it. And that’s what the cash you’re seeing is about. It’s about the proliferation of corporate personal jets, not owned by the company, but by individuals, of people who own six and seven and eight and nine mansions. Remember, John McCain couldn’t remember how many homes his family had. And so, low tax rates destroy jobs. They encourage withdrawals from business instead of encouraging owners to keep reinvesting in the business.
AMY GOODMAN: David Cay Johnston, we want to thank you for being with us, Pulitzer Prize-winning investigative journalist. His most recent book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). Former New York Times reporter, now writes at Tax.com.