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

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

by David Cay Johnston
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Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat E verybody Else by David Cay Johnston

Now updated with a new prologue!


Since the mid-1970s, there has been a dramatic shift in America's socioeconomic system, one that has gone virtually unnoticed by the general public. Tax policies and their enforcement have become 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 behind:


"Middle class" tax cuts and exactly whom they benefit.


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


How some corporations avoid paying any federal income tax.


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.


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


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 stir up media attention and make readers angry about the state of our country.

From the Trade Paperback edition.

Product Details

ISBN-13: 9781101216224
Publisher: Penguin Publishing Group
Publication date: 01/04/2005
Sold by: Penguin Group
Format: NOOK Book
Pages: 352
Sales rank: 487,047
File size: 961 KB
Age Range: 18 Years

About the Author

In 1995 David Cay Johnston persuaded the editors of The New York Times to hire him to see if he could devise a new way to cover taxes, focusing on how the system operates rather than what politicians say about it. His work has resulted in shutting so many tax dodges, in pressing so many new laws and regulations and enforcement efforts that some tax policy officials now consider him, as one tax law professor put it, "the de facto chief tax enforcement officer of the United States."

He won a Pulitzer Prize in 2001 for his running investigation of our tax system and was a finalist for that award in 2000 and in 2003 for beat reporting and for national reporting

In 1968 Mr. Johnston began his career when he talked his way, at age 19, into a job as a staff writer for the San Jose Mercury. When he left nearly five years later he was still its youngest reporter.

He was an investigative reporter for the Detroit Free Press in its Lansing bureau 1973-76; a reporter for the Los Angeles Times in San Francisco and then Los Angeles from 1976 to 1988; a reporter and, briefly, editor at The Philadelphia Inquirer in 1988 until he joined The New York Times in February 1995.

He studied economics at the University of Chicago graduate school and at six other colleges, earning six years of college credits but no degree because he took upper level and graduate level courses almost exclusively.

Over the years Mr. Johnston's many investigations included hunting down a murderer the police had failed to catch, winning freedom for Tony Cooks, to whom a trial judge said "I believe you are innocent, but I sentence you to life in prison."

He was the first reporter to seriously investigate the Los Angeles Police Department, exposing mismanagement, inefficiency, brutality and a worldwide political spying operation. The LAPD now operates under the aegis of the federal government.

He helped save a third of a billion dollars from being snatched from poor children by Barron Hilton. He exposed misuse of charitable funds at the United Ways in Los Angeles in 1986 and Washington, D.C., in 2002 and exposed news manipulations at the most profitable television station in America, WJIM-TV, that ultimately forced the sale of that station and five others. He also broke the story that Donald Trump was no billionaire, but, according to his own documents, actually had a negative net worth in 1990.

His previous book, Temples of Chance, exposed the fraudulent way that New Jersey regulates casinos. It is under development in Hollywood as a motion picture about the characters he described in Temples of Chance.

Mr. Johnston lives in Rochester, New York, with his wife, Jennifer Leonard, and their two daughters. He has six grown children and four grandsons.

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Perfectly Legal: The Secret Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else 4.2 out of 5 based on 0 ratings. 15 reviews.
random_skeptic More than 1 year ago
Perfectly legal is one of those books that you pick up and exspect to learn a few new things about our tax system and the rich. Then when you do read it, your mind is blown away. I had no idea the various strategies the wealthy and the ultra wealthy use to avoid paying their fair share to support our government and society. David Johnston went into great detail about these various schemes. Many of the rich create charitable tax shelters,actually leave our country to set up shop in another to capitalize on tax breaks and avoid taxation (while benefiting from U.S.A.'s laws and protection), and some blantantly refuse to pay taxes. All of this occuring with few, if any reprecussions. He also goes into some detail about a "stealth tax" that I had no idea existed. Johnston also reveals much about how tax breaks given to the rich are forcing the burden of taxation on those who have more difficulty paying them. However, he also offers some hope for reform. This book is a must read for ANY american citizen who is either working class or middle class(and yes even upper middle class). I feel that I am more knowledgable then ever about our tax system and its connection with the economic, political and social health of our nation. A job well done Mr. Johnston.
Anonymous More than 1 year ago
The Book; Perfectly Legal is a great book for young adult readers who are interested in investigative journalism. Perfectly Legal  describes the life of an estate lawyer in Lower Manhattan Blattmachr who exposed many unblocked routes through tax free living. The book gives many helpful graphs that describe what David Johnston is otherwise written in black and white. The best part of the  book would be the investigative journalism aspect, and that David Cay Johnston had legitimately done the research required to gather sound statistics on the topic at hand. I would recommend the book to anyone who enjoys books that uncover hidden truths. 
Guest More than 1 year ago
The media and middle-class voters have blandly accepted tax cuts for the wealthy, thanks to the theory that the rich have paid more than their fair share of taxes for a long time. Nothing could be further from the truth, journalist David Cay Johnston convincingly argues. Using thorough research and startling examples, Johnston makes a persuasive case that the rich enjoy a free ride from Uncle Sam, while the middle class is saddled with an ever-increasing tax burden. Johnston takes you on a hair-raising tour of posh jets, corporate compensation committee meetings and IRS offices, piling up the evidence that the deck is stacked in favor of the rich. Johnston's strident tone grows a bit tiresome, yet the results of his reporting are sure to raise the blood pressure of anyone who hasn't benefited from a lucrative tax dodge. We recommend this trenchant book to anyone with an interest in creating a fairer U.S. tax system ¿ or in living with the one they've got.
Guest More than 1 year ago
This book is an excellent read for people familiar with accounting and tax law terminology. While the author attempts to put the language into plain english, some of it is impossible to simplify. That is not critique of the author, but more of a critique of the sophisticated tax system used to confuse, then manipulate the avegrage tax payer. Like the language itself, the schemes uncovered by the author are equally as complex and enlightening. If you are comfortable challenging yourself to learn more about a sophisticated subject used to keep you from noticing the wealthy make off with more millions and billions I would highly recommend this Book.
Guest More than 1 year ago
Given the long list of partisan titles on the non-fiction bestseller list, this book goes unnoticed. You will find yourself ashamed of the IRS (and the politians who undermined it)and at the same time wishing the often reviled gov't agency would get up off the mat and make the game fair for all of us. So many good points made here by a great journalist. He has shifted my perception as to who is rich in our country and who is really paying the bills.
Guest More than 1 year ago
I highly recommend this book, but it actually understates the case by focusing on income instead of wealth. Since I agree with most of the complements written about this book by others, I will focus my remarks on some important deficits. The missing part of most discussions of taxes, and missing from this book, is a clarification of the equitable basis for taxation. Often, someone will propose a scheme of taxation and simply claim that it is equitable, especially if it results in someone else paying more of his or her taxes. In an equitable tax scheme each taxable entity should pay a share of taxes proportionate to the benefits that person derives, directly and indirectly, from the tax supported infrastructure. It is similar to paying a proportionate share of the rent of a building based upon the value of one¿s beneficial occupancy. Neither a tax on gross income, taxable income nor any form of consumption comes close to being equitable. Even if some of the wealthiest citizens were taxed at 100% of gross income they still would not come close to paying their fair share of taxes. The very rich are amused to see how easily the public is taken in by comparisons based upon income. They know that income figures do not reflect their annual increase in wealth, most of which goes untaxed. Most of the annual increase in wealth of the rest of the public is completely exposed to taxation. In addition, their unrealized capital gains are made readily available to them by their ability to borrow at low cost and by other means not available to less fortunate citizens. The author, a Republican, mentions ¿supply-side economics,¿ but fails to explain how the Republican Party has transmogrified the simple, and reasonably correct, supply-side theory into a tax theft scheme. The theory states that if a supply is introduced into the market, the market will eventually recognize it and, at some price, remove it from the market. The theory does not at all suggest that this is a good business practice. Under conditions of a lack of demand, an increase of supply is not a stimulant. The best price at which to buy the excess supply is so far below scrap value that a subsequent sale at a price as low as scrap value will provide a profit. The highest price that should be paid for it is sufficiently below the cost of production of any current producers such that they will be unable to compete with a sale that is profitable at a price well below their cost. Excess supply drives out profits. The supply-siders suggest that they can stimulate the market by using the tax system to take money from consumers and transfer it to producers in the hope that they will increase supply and the presence of supply will stimulate demand. They would have you believe that, under conditions of a lack of demand, producers will be so foolish that they will increase the dead load in the supply chain in the hope of selling more goods to those who will have even less money with which to purchase it. It should be apparent why it has never worked. Neither is there the slightest evidence that there is any lack of capital available to producers when there is even a faint hope of money in the marketplace. Certainly, the recent Internet bubble amply illustrated that there is a flood of capital available when the hope of revenues is just an illusion. That has been the case at least since the Tulip Mania of 1635. There is always more capital available than there are good applications. Stuffing the pockets of the rich at the expense of consumers is a depressant and never a stimulant to demand. In addition to tax code tricks, the author might have mentioned how your taxes are bloated with contract games. How about building a Maginot Line in space? It is called an anti-missile defense system. Like the Maginot Line, it might work if you can find an enemy dumb enough to attack it in precisely the manner in which it was designed to defend. There are dozens of ways to get around it a
Guest More than 1 year ago
This is one book you will definitely want to read. If you thought that you understood America's tax system and how it affects you, you will probably be shocked to discover just how wrong you have been! David Cay Johnston is an investigative reporter who is a double Pulitzer Prize winner. He spent many years working on the material for this book. Once you begin to read this, you will find it difficult to put down. It will open your eyes like nothing you have ever read about taxes, and who is carrying the burden, and who will find themselves buried under a severe burden within only a decade. Johnston is an excellent writer and the information just flows off the page. This is easy reading and it is some of the most informative material you will ever come across. You cannot afford to be ignorant about our tax system and how it is affecting you. I'm sure you have heard the political arguments where Democrats say, 'the Republicans are robbing the poor to give to the rich' and the Republican arguments that 'the rich are carrying all the tax burden and need relief.' Which is really true, and how do you know it? Read this book and you will find out. It will become crystal clear. Are you aware that there are really TWO Income Tax systems? One is the regular Income Tax which is what you hear everyone talk about when they talk about giving exemptions and giving tax cuts. But you never hear them talk about the Alternative Minimum Tax (AMT). It takes precedence over the regular Income Tax and is the final determinate of the taxes you pay. It was originally put in place to prevent the richest 155 families in the US from getting away with paying zero taxes. It has since turned into just the opposite. What it now does is to redirect the tax burden from the top wealthiest families to the middle class families. The wealthiest still pay zero taxes by using tax deferment methods and tax shelters. They can delay tax payments up to 30 years and pay with inflated money that is worth less than half the original tax burden. And the major tax burden has shifted to families making from $70K to $500K. If you make over $500K, you tax burden drops DRAMATICALLY, but if you are in the middle class, you tax burden increases with each passing year. By the year 2010, the Alternative Minimum Tax will take in more of your tax dollars than the actual Income Tax structure. I wish I could tell you more here, but it would be senseless to try to repeat all the information that this book provides. It is a wealth of information. Let me mention one other thing: Social Security. You remember that back in 1986 there was a big 'Social Security scare?' It was being said that Social Security was going broke? You were lied to. Social Security had a minor 5% shortfall, and only need a minor adjustment to solve the problem. However, Reagan's 'tax cut' was causing severe deficits. Both the AMT, and Social Security were adjusted to make up for the decline in Income Taxes. The tax cut was given with one hand, and taken back with the other. What shifted was WHO the tax burden fell on. Social Security went from a pay-as-you-go system, to a pay-in-advance system. The additional excess income from Social Security taxes are siphoned off to pay for the tax cuts. From 1984 to 2002, the government siphoned off $1.7 TRILLION from the Social Security System to pay for government operational cost that could not be paid for with the lower Income Taxes. Many families are now paying more in Social Security taxes than they are in Income Taxes. This is a 'hidden tax.' Additionally, not only does that tax come directly out of your paycheck, you employer pays the other half, which is twice the amount shown on your pay stub, but which the company considers a part of your salary benefits. This extra Social Security tax is going to supplement the tax breaks to the wealthiest families in America. That, currently, is $1.7 TRILLION that will never be paid back to the Social Security Sy
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Guest More than 1 year ago
This book is indeed truly fascinating. Mr. Johnston has done a great job with backing up his points with fact. He talks about everything from CEO's who cheat investors with lost cost plane flights to outright mass tax avoidance. It is evident that someone reading this book will become angry. It seems that the rich receive all of the breaks and the middle class and poor foot the bill. However, this book had the opposite effect on me. The further I got in the book, the more I realized that I was on the wrong side of the income ladder. There are a few things of interest I would like to point out to a potential reader. The first is the alternative minimum tax. This is an alternative tax system that those who earn modest incomes were never to be on. Mostly, Democrats have tweaked the system as to were low income people are forced on to the system. I strongly urge anyone who reads this review to do their own investigation of the alternative minimum tax. It will heart-breaking for anyone not expecting to pay this tax. Next, be careful of the rhetoric used by Washington concering the 'death tax'. To those who are ignorant, you will be duped into believing you have to pay it. It only applies to those who have half a million dollar estates or more. Finally, I would like to say that Mr. Johnston's title: Perfectly Legal somewhat hurts his cause. Alot of what's done in the book is legal. Some of the examples he give illustrate how people use the law to their advantage. So remember, the title is Perfectly Legal, not Perfectly Illegal. In conclusion, I recommend reading this book. I also recommend becoming financially smart and increasing your personal fortune so that you too can enjoy these benefits. Futhermore, I found Mr. Kellogg's favorite loophole most intriguing. It gave me all kinds of ideas. Lastly, I really enjoyed the book and you will too.
Guest More than 1 year ago
Every American needs to read this book. What you didn't know will leave you gasping.
Guest More than 1 year ago
The most important book you will read this year!, January 15, 2004 Reviewer: Jerry Fisher (see more about me) from Kent, New York United States If you are wondering whether you should read this book, I strongly say YES. I just finished reading Perfectly Legal, I have a Ph.D. in economics and business administration and was not sure that I would learn that much. Boy, was I wrong! What an outstanding book! He writes so cleanly and clearly, it is no surprise he has a Pulitzer for stories he has written for the New York Times. The research and logic is world class and very disturbing. We need to fix the situations described before it is too late. To do this we need to get our friends and associates to read it as well. Get the word out. Buy it and give it to your friends, (you get free shipping if you buy more than one :-) suggest it to book clubs, talk about when ever you can. The Miami Herald book club is reading and reviewing it this month. We need more of this to happen. Dave Johnston has written an investigative masterpiece in the tradition of Upton Sinclair book The Jungle. He and has done a great service to America in writing this book! As Upton Sinclair created a political revolution in 1906 when his book was published - this book should create a revolution in 2004. If we do not fix what David has identified, America and the world will indeed be in a sorry state. Just one example out of hundreds and hundreds from the book that must be reversed. David points out that the upper 10% of U.S. tax payers saw their income rise by 88% and their share of national income go from 33% to 48% from 1970 to 2000. The the bottom 90% of US taxpayers saw their income stagnate and their share of national income went from 67% to 52%. And as David points out if the current 'Perfectly Legal' tax loopholes continue, this disparity with grow! Your future and your family's future are in the balance. This is not a republican or democratic issue, it's an American issue! America will not be great nation if it becomes a nation of haves and have nots. Get the word out about this book, e-mail your family and friends, it is the most important thing you can do this year. We need the changes that Upton Sinclar's book brought about, and David Cay Johnston's book can do that. It is even more important to our contry in 2004 than Sinclar's was in 1906. To make this happen we must do our part. The next time a friend invites you dinner, bring this book instead of a bottle of wine or 6 pack of beer. Your friends will forget the wine or beer they will never forget this book! And they will thank you over and over for it. My friends have. Jerry Fisher
Guest More than 1 year ago
This book should be owned by everyone in the 50K to 500k earnings category who, like our founding fathers, believe that no generation has the right to impose greater debts than it alone can pay off. Read this for your children.
Guest More than 1 year ago
This book is another attempt by Mr. Johnston to obfuscate the real truth regarding the IRS and its misapplication of the tax laws. While Mr. Johnston weaves a careful tapistry designed to paint for the reader a somewhat dismal picture, the discerning reader will ask the embarassing questions and not fall prey to the wooing call to pitchforks and torches...the real question to be answered by his book should be, 'does the tax even apply to most US Citizens who live and work within the 'several states'?' The literary style is impeccable, what I who has followed Mr. Johnston's exploits over the years have come to expect. My my expectations have also been met by his disguising prose, which hides his true intention to woo the public to the siren's tune. So it only remains, just who's ox does Mr. Johnston intend to gore with this piece? Is Mr. Jhonston just another lap-dog for the IRS....?