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How You Can Have a Billion-Dollar Income in America and Pay No Taxes

Tax journalist David Cay Johnston explains what's so rotten about our taxation system and the distribution of wealth in this country.

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While it's true the top 1 percent are paying around 40 percent of the total income tax, in recent years they also have earned as much as 20 percent of the income -- 21 percent in 2008, the last year we have full data. Because their income has gone up vastly faster, the share of income tax paid by people at the top has gone up -- even though their rates have been cut.

It's important to recognize what's happened to incomes in America. More than half of the income in the top one percent goes to the top 10th of one percent -- one out of a thousand families in America. For every dollar they made on average in 1980, in the year 2008 they made $4, adjusted for inflation.

But in 2008 the bottom 90 percent of Americans earned on average a dollar and a penny for every dollar they earned in 1980. In 28 years, their average income went up 1 percent, $300 and change for the year, basically a dollar a day.

I did an analysis comparing 1961 incomes to 2007. The bottom 90 percent -- after higher income and social security taxes -- was making just a little bit more than they made in 1961. For each dollar in 1961, they made a dollar and twenty cents in 2007. The group at the top got $36.50 after tax per dollar they made in 1961. That's 180 times as much growth.

The top 400 taxpayers now make about a million dollars a day. We have redistributed income, through a variety of means -- suppressed unions; reduced taxes and tax deferrals to people at the top; encouraging owners to withdraw capital from their businesses, destroying jobs. In the bottom half, people are making less now than they did 30 and 50 years ago, when you adjust for inflation.

The Republican answer to this is the same answer that George Washington's doctors applied to him when he got sick: they bled him. When he didn't get better, they bled him more, and they ultimately bled him to death. Let's cut taxes for the rich and cut them for the rich and cut them for the rich, and the economy keeps getting worse. It's not true that high taxes destroy jobs. Low taxes destroy jobs by encouraging owners of businesses to withdraw money from the business.

TM: The small business owner that the tax-cuts-for-the-rich crowd claim to represent.

DCJ: Most small businesses don't pay taxes. They are designed not to earn a profit, but to draw down to zero so they pay no taxes. Maybe even have losses. Unlike a publicly traded company, where the goal is to report the biggest profits you can, to pump up the stock prices, and -- like GE -- still pay no taxes.

TM: In the Wall Street Journal March 22nd: "IRS Targets Rich Taxpayers. The rich not only face calls for higher taxes, they also face more audits to make sure they pay." And the article ends with this question: "Do you think the new tax force is welcome tax justice or capricious wealth redistribution?"

DCJ: In the late 1980s if you were a high income tax payer, your odds of being audited were about one in 11. They have been as low in recent years as one in 400. They're currently a little over one in 100, probably about one in 75. If you're in the $10 million-up crowd your odds are much higher, they're more like one in six. But the audit rates are still very low.

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