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Monday, January 16, 2006

Review: Perfectly Legal, David Cay Johnston

I first read this book 2 years ago. Ever since discovering that the Santa Clara County Library's electronic catalog, I've stopped buying most of the books, but when Scarlet pointed me at a recent New York Times article about the poor being audited (and denied tax refunds) at a much higher rate than everyone else, I remembered this book and seeing it in the bargain bin at, decided to buy it.

This is an incredibly well researched book --- Johnston won the Pulitzer prize in 2001, and has been nominated 3 other times, and his writing and research shows. Here are a few questions that Johnston raises and answers: What is the Alternative Minimum Tax, and how did it arise? And why is it becoming something that you should be worried about? Why do the poor get audited 47 times more frequently than everybody else? How did Enron use limited partnerships to pay zero taxes while claiming to make $2 billion a year? Why does the IRS not go after tax cheats? Do the fabulously wealthy (those making $3 million a year or more) really pay a lot more taxes than everybody else? How is the Social Security tax regressive?

As I re-read this book, I am struck again and again by how much the wealthy (anyone making more than $100k a year) and the super-rich ($3 million and up) have skewed our tax system in their favor, while leaving the rest of society to foot the bill and causing our deficit to balloon. I consider this book a must-read for those who wish to consider themselves educated and responsible voters. Even if you don't wish to become one, at least do it so that you won't become one of these chumps:

Tom Toth says he is comfortable with the fact that not everyone received a rebate. And he is also comfortable with the aspect of the Bush tax cuts that drew the most criticism, the fact that 43 percent of the income tax cuts, and more than half of the total tax cuts, go to the top 1 percent. "The top 1 percent is probably paying more than 43 percent of all the taxes, so they should be getting the cuts," he said.

But Tom is mistaken. The tax burden on the top 1 percent is nowhere near that hgh, although so many politicians and antitax advocates have made such false claims so many times that millions of Americans believe it to be true. The top 1 percent paid 36 percent of the income taxes in 2001. But when the burden of all federal taxes is added up --- corporate profits, estate, gift, Social Security, Medicare and excise taxes --- they only paid 25 percent.

When the Bush tax cuts of 2001, 2002, and 2003 are fully in place in 2010, the share of taxes paid by the bottom 95 percent of tax payers will rise by 3.8 percentage points, while for the top 5 percent it will fall by the same amount. Nearly all the tax savings will go to the top 1 percent, whose share will decline by 2.7 percentage points.

It is sad that despite how well written this book and how many awards it has won, it will have no effect on the next election --- our education system has failed us to the point where our politics are determined by sound-bites and TV, not well-informed discussion and debate (believe me, I've had discussions with people in the office I work who come extremely close to saying things like: "Don't confuse me with facts!"). I'm afraid that there will have to be a Great Depression like economic disaster before the population wakes up enough to vote in a responsible politician like Franklin Roosevelt to restore the Great Society.

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