The U.S. rich get richer while the rest tread water

The Argument

The tax structure and the unbridled greed of top executives are creating a potentially crippling economic imbalance.


January 04, 2004|By Larry Williams | Larry Williams,Sun Staff

After three years of recession and frustratingly slow growth, there is broad agreement that 2004 will be a great year for the American economy.

But if profits, productivity and stock prices are on the rise, so are concerns about the nation's economic future.

As some experts see it, the grinding power of capitalism combined with demographic forces already visibly in play are undermining principles of social justice and fair play that define the American way of life.

Globalization is changing the basic economic equation -- sending growing numbers of manufacturing and service jobs abroad, while rising health-care costs are squeezing consumers and a mounting federal deficit is threatening the retirement futures of millions of baby boomers.

David Cay Johnston, the Pulitzer Prize-winning tax reporter for The New York Times, sees a more prosaic issue at the root of our anticipated economic dilemma -- the greed-driven power of America's wealthiest citizens.

Johnston argues that the richest families in the nation have been using their political influence to systematically undermine the nation's tax system to cut their own taxes while taxes on the middle class and upper-middle class have been raised to make up part of the difference.

"There is much talk these days about our income tax as a socialist redistribution scheme," Johnston says in his new book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich -- and Cheat Everybody Else (Portfolio, 327 pages, $25.95).

"But the scheme is not to take from the rich and give to the poor, deserving or not, as the courtesans of wealth in Washington would have us believe when they pontificate on the Sunday morning talk shows.

"Rather, as Orwell taught us, ours is like all systems in which some animals are more equal than others -- it is the pigs who grow economically fat off the tax system."

Johnston argues persuasively that:

* The income tax is collected only against reported income and that because the tax code includes an array of methods for the rich to avoid recognizing income for tax purposes, they pay a much smaller share of what they earn than middle-class Americans.

* The IRS is starved by Congress of the resources it needs to effectively prosecute tax cheats.

* As a consequence of the current inequitable tax system, the incomes of the richest 1 percent of the population, especially the top-earning 13,400 American families, have soared, while the bottom 80 percent of Americans have seen their incomes stagnate for three decades.

The way Johnston sees it, the tax breaks for the wealthy are crippling the nation socially and economically.

"Do we shrink our government, cutting even more spending on public education, stunting the development of new human capital?" asked Johnston. "Or do we cut spending on research and development, as executives like [former GE Chairman] Jack Welch did to boost short-term gains at the expense of long-term growth?"

Johnston notes that, in a trend started by President Bill Clinton and continued by President George W. Bush, taxes on capital gains have been steadily reduced with the avowed goal of eventually eliminating them.

There ought to be a more public debate over how the tax system might be changed, he argues.

To be better prepared for that debate, readers might be well advised to read Taxing Ourselves -- A Citizen's Guide to the Great Debate Over Tax Reform, second edition (MIT Press, 337 pages, $22.95).

In this book, Joel Slemrod, a tax expert from the University of Michigan, and Jon Bakija, who teaches at Williams College, give a masterful overview of the history of taxes in the United States and discuss the social and economic effects of various reform possibilities.

They note that Americans have loved to complain about taxes since the republic began and that the popular goals of achieving simplicity and fairness are a far more elusive target than they might seem at first blush.

For a closer look at the super-wealthy who are viewed as the enemy by Johnston, New Yorker editor David Remnick has collected some powerful portraits, warts and all, in The New Gilded Age: The New Yorker Looks at the Culture of Affluence (Random House, 432 pages, $26.95).

In a typical essay, Joan Didion assesses Martha Stewart, a driven business whirlwind who created a billion-dollar company, the only real product of which is Martha Stewart herself.

As Stewart deals with the consequences of her alleged greed -- she faces trial later this month on insider trading charges -- Johnston argues in his book that striving is not the problem but rather efforts by the wealthy to permanently stack the economic deck.

"Do we want a an inherited aristocracy of wealth? Or a meritocracy of strivers? Do we want a society where people create new fortunes through their enterprise or a society of people who owe their wealth to what Donald Trump calls the lucky sperm club?"

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