Review of 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
H. William Batt
GroundSwell, September-October 2005]
Two trade books have come out in the past four years on the
corruption of the U.S. federal income tax system, both written by
journalists and both carrying the same thesis -- that the current
structure as designed by Congress is totally compromised, and by its
loss of legitimacy undermines the support of government itself.
Bartlett and Steele were both journalists with the Philadelphia
Inquirer until recently and David Cay Johnston covers the tax beat
for the New York Times. They argue that the costs of compliance are
enormous, both to individual taxpayers and to government, and that
the system is perceived to be so unfair that an increasingly
proportion elect to cheat if they can -- as many as half the public
believes that is OK to do so.
The authors point out further that there is a significant
proportion of Congress that has sought to undermine the income tax,
either because they want to bring it down or because it offers
further opportunities for favors to special pleaders -- who are
serviced in exchange for campaign contributions. The lack of
adequate staff and equipment in the IRS to audit returns and the
increasing opportunities to evade taxes through offshore havens mean
that the rich are often paying a far lower percentage burden than
the middle class. All the while political leaders of both parties
pander to anti-tax sentiments of a jaded citizenry.
Both books offer solutions of sorts, but they don't give the
reading audience much hope. The major reason for their inability to
offer any real answers is that they are dependent totally upon the
conventional wisdom that prevails in mainstream fiscal policy
circles. Their alternatives are to tax income or consumption, and
then offer cursory variants upon each theme -- a flat tax or a
graduated income tax, or else a general sales tax versus a value
added tax. Bartlett and Steele devote a last chapter (three pages)
to "starting over" but still consider only the income tax.
To use the phrase now too much in vogue, neither can think "outside
To the credit of reporter Johnston, he recognizes that there are
some lessons to be learned from the three millenia of world tax
history: that tax designs ought to be measured against the standards
of fairness, efficiency and effectiveness. It is not until twelve
pages before the end of the book, however, that these words are
mentioned, and even then without any elaboration of their meaning.
If he had explained at the start the guideposts available by which
to measure tax structures, his book would have had far more cogency.
But even then, he never asks a fundamental question: not who
should we tax but what? Had he recognized that there are three
options: labor, man-made capital and natural capital, he might have
come to understand that taxing resources to discourage their
profligate use, or taxing those values with an inelastic base, would
lead not only to greater economic efficiency but to such other
benchmarks of a good tax -- equity, neutrality, simplicity,
stability, administrability, and certainty. The venerable tradition
that grows out of 19th century classical economics culminating in
the arguments of Henry George has seen a revival of interest
worldwide. Also one can now get a doctorate in Ecological Economics,
a paradigm totally at odds with the mainstream Neo-classical school.
The literature abounds had he been willing to draw on it -- recent
editorials in The Economist, Governing Magazine, and the
professional serial Tax Notes. The internet has some thirty sites
expounding the virtues of the Georgist approach, and Ecological
Economics is a journal now twelve years old
Yet only twice in
his book does he mention rents, and then only in passing
enumeration, never elaborating. The availability of data and the
increasing power of computers now make it possible to demonstrate
the validity and administrability of ideas that for a century were
only theoretical and plausible claims. Taxing rents on natural
capital and untaxing other factors, it appears now, could finance
all government services without depressing the economy one bit.
The lessons to be taken from books such as these are 1) that
proponents of alternative tax approaches such as those embodied in
heterodox economics need to make their ideas better known and
understood in the popular discourse, and 2) that journalists have a
responsibility to reach beyond the conventional debates to bring to
light solutions that for the moment remain outside the mainstream.
It is disappointing that such well-established journalists from such
well established media have failed in this regard. Only perhaps as
circumstances continue to deteriorate will solutions be sought from
what alternative schools of thought have to offer.