Perfectly legal: a study of tax avoidance and evasion

Economics

Perfectly Legal

The purpose of this paper is to introduce and analyze the book "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else" by David Cay Johnston. Specifically it will contain a book report on the book. David Cay Johnston is a New York Times reporter who won a Pulitzer Prize in 2001. He specializes in writing about tax issues, and this book is the culmination of many years of research. It tells the story of corporate excess at the expense of middle-income America, and should outrage just about anyone who reads it.

Johnston opens his book by noting that when he took his current position at the New York Times in 1995, he was assigned U.S. taxes to cover, and that most of his acquaintances thought he would write about tax evasion, how to save money on taxes, and tax legislation. He notes, "That was not what I had in mind" (Johnston 1). Instead, Johnston was intent on creating a "running investigation" of the IRS, like the investigative journalist he is. He also notes that this book is not simply about economics or "facts and figures," but instead is a book about corporate greed, power, and avarice that is allowed to continue through very legal and acceptable (at least in some circles) means.

The author is not against taxes. Again, in the Prologue, he notes, "A good tax system flows from the economic order and greases the wheels of commerce" (Johnston 2). However, in the pages that follow, he illustrates a tax system that is so seriously flawed it would be laughable if it were not so pathetic, and an IRS that is out of touch even with its own laws and regulations. It also shows that even when the IRS knows that certain tax laws have been manipulated by the rich and powerful, they tend to overlook these "transgressions" rather than attempting to collect the taxes. Take for example, the case of the "accelerated charitable remainder trust" scheme that tax consultant Jonathan Blattmachr engineered in the 1990s for Bill Gates (it is not known if Gates used the dodge before it was outlawed) (Johnston 7-8). Schemes like this continue, and as soon as one is outlawed, another takes its place, allowing the super rich to live extravagant and lavish lifestyles at the cost of "normal" American taxpayers.

He also shows how American wages have been relatively flat for the last thirty years (when adjusted for inflation), and yet the wealth of the super rich has skyrocketed, while average workers continue to earn average wages that are not really increasing all that much. The author writes, "Those near the top are almost in the same position as they were three decades ago, while on the very topmost rung a rapidly growing share of the nation's income is piling up, weighing ever more heavily on everyone below" (Johnston 29). Thus, the only people that are benefiting from the wealth and excess that has become part of the national economy are the very topmost rung of Americans, and they are the only Americans who have actually seen their incomes rise dramatically in the last three decades. The rest of the population's income, when adjusted for inflation, has seen their incomes remain remarkably static. An interesting corollary to this is the fact that as incomes flattened for most Americans; those Americans who voted began to decline (Johnston 43-44). Clearly, there is disenchantment in the American people surrounding income and taxation issues, and this disenchantment is being shown at the polls, where fewer Americans actually believe voting can make a difference in their lives.

The author's thesis is clear: The IRS allows itself to be manipulated by the super rich, and instead of going after these people for the taxes they should be paying, they are increasingly relying on the lower-, middle- and upper-middle-classes to pay the taxes, placing a bigger burden on those who can least afford it. The super rich are not paying their fare share, and because of this, quality of life is shifting in the country. He proves his thesis in every chapter of the book with graphs, tables, charts, and research that shows how the super rich are growing richer at the expense of the rest of America, and how the IRS and Congress support this manipulation of the tax system. For one reason, the super rich are some of the biggest political contributors, and so, it pays Congress to ensure their continued support and fiscal maintenance. He also uses economic theories and trends to illustrate his point and make the text more credible and believable.

Throughout the book, the author shows not only that he deeply understands his material, but he has the ability to explain it so most readers understand it as well. With all the economic information this book contains, it could be dry and uninteresting, but instead, the author presents facts and figures in a way that shows he understands the material, but also has the ability to explain it to others, which is extremely important in this type of book. It is also essential if the author hopes to have Americans read his book, and act on it, which is clearly one of the author's purposes in writing this book. Has it changed the American tax system? Sadly, no it has not. However, as more people become aware of the flaws in the system and who it benefits, perhaps in the future there will be a more equitable and fair tax system for all Americans, not just those with the most money and power.

The author is uniquely qualified to write this book for a number of reasons. First, he has been a reporter for nearly 40 years and an investigative reporter for much of that time, so he knows how to unearth facts, figures, and information on his topic. His notes indicate that he has used primary and secondary sources from a variety of informants, from his own research to IRS records, legal records, and other investigative reporters, among others. He has interviewed accountants, lawyers, and IRS personnel, and he has delved into court cases and other IRS legal dealings. He is an excellent investigative reporter, and this book indicates that he understands the many convoluted laws and principles behind the IRS laws, and understands how easy they are for the super rich to manipulate in their own behalf, too. The author's understanding adds credence to this book, and makes it more readable for the layperson, as well.

This reader would recommend this book to anyone in America. The tax system is a convoluted and frightening mass of data, laws, and enforcement that frightens and intimidates most Americans. The only people who seem not to be intimidated are the super rich and corporations, who essentially manipulate the tax codes for their own purposes. In addition, the book contains a wealth of information on other tax breaks the rich receive, on everything from corporate jets to the estate tax and beyond. The author also contemplates reform and whether it can really occur or not. As he notes, "But we have to demand that reform and we have to focus on the principles that would make a tax system fair, efficient, and effective" (Johnston 304). So far, it does not seem as if most Americans are willing to take that step.