Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich–and Cheat E verybody Else

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Now updated with a new prologue!

Since the mid-1970s, there has been a dramatic shift in The usa’s socioeconomic system, one that has gone virtually unnoticed by most people. Tax policies and their enforcement have turn into a disaster, and thanks to discreet lobbying by a segment of the top 1 percent, Washington is reluctant or unable to fix them. The corporate income tax, the estate tax, and the gift tax have been largely ignored by the media. But the cumulative results are remarkable: today someone who earns a yearly salary of $60,000 pays a larger percentage of his income in taxes than the four hundred richest Americans.

Pulitzer Prize-winning investigative reporter David Cay Johnston exposes exactly how the middle class is being squeezed to create a widening wealth gap that threatens the stability of the country. By relating the compelling tales of real people across all areas of society, he reveals the truth in the back of:

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“Middle class” tax cuts and exactly whom they benefit.

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How workers are being cheated out of their retirement plans even as disgraced CEOs walk away with millions.

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How some corporations avoid paying any federal income tax.

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How a law meant to prevent cheating by the top 2 percent of Americans no longer affects most of them, but has morphed into a stealth tax on single mothers making just $28,000.

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Why the working poor are seven times more likely to be audited by the IRS than everyone else.

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How the IRS became so weak that even when it was handed complete banking records detailing massive cheating by 1,600 people, it prosecuted only 4 percent of them.

Johnston has been breaking pieces of this story on the front page of The New York Times for seven years. With Perfectly Legal, he puts the whole shocking narrative together in a way that will fan the flames of media attention and make readers angry about the state of our country.

Most Americans would agree that they are duty bound as beneficiaries of our democracy to pay taxes, and the majority of us do pay—-exorbitantly. But what about those who do not pay their fair share? David Cay Johnston, a Pulitzer Prize-winning reporter for the New York Times, here reveals how fairness and equity have eroded from the American tax system. Johnston describes in shocking detail the loopholes our government provides the “super rich”–from private individuals to profitable corporations—-to hide their wealth, to defer or evade tax payments, and to pass the bill to law-abiding middle-class Americans. The loss in revenue “imposes a severe cost on honest taxpayers” through reduced services, increased federal debt, and a weight on the middle class that threatens to impede its ability to achieve upward social mobility.

Admitting the extreme complexity of our economy and by extension our tax code, Johnston points out that the very wealthy do, of course, pay taxes. On the other hand, on account of shelters that allow them to understate most of their income, they pay little more on average than most Americans on the dollar. This is regressive, and unquestionably favors the superrich. Johnston includes examples of outrageous corporate malfeasance (such as companies that establish off-shore tax addresses) and exposes the tax benefits of the particularly loathsome practice made famous by Jack Welch, in which thousands of wage earners are laid off even as a handful of executives are granted hundreds of millions of dollars through deferred compensation, company stock options, and lucrative retirement packages, all at stock holders’ xpense. Along with these offenses, he describes the tax evasion methods of those who simply defy the law and are emboldened by a beleaguered IRS that is too underfunded to serve as an effective deterrent to tax cheats. Johnston calls for a complete overhaul of the system. But because those who most get pleasure from these laws comprise the “donor class” that supports the government power structure, our prospects for reform remain very bleak. —Silvana Tropea