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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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From interviews with dozens of IRS agents all over the country who weren't supposed to talk to me, it's clear many of these audits are superficial. They're told not to pursue things.

They were going to prosecute the IRS agent, Renee Welling in Encino, California, who stumbled across the backdated stock options scandal in 2004. The whole system came down on her head, simply because she said, "I'm not going to look the other way and let this company get away now and forever with a crime." In my book, Free Lunch, I said that the investors of America should erect a statue in her honor.

TM: Because she was actually putting some muscle behind the word audit.

DCJ:  When a guy in San Francisco with a stellar 30-year career at the IRS was put in charge of collections, he announced that they were going to go after the elite and the politically connected with the same fervor they were going after Joe Six-Pack. He was literally put in a room with no windows and no computer and told to sit there day after day. They mucked up a charge to go after him because there was some pornography in his computer. Of course, 10 years ago you could just open an email and suddenly have all sorts of pornography exploding on your computer. Plus he had used his computer to help one of his subordinates find an inexpensive airfare. For this we should undo a 30-year career and discharge him in disgrace.

TM: There's some muscle in that audit!

DCJ: I was able to dig out that he went after the family of former Mayor Alioto of San Francisco and Al Davis, owner of the Raiders, among others.

TM: Let's talk about corporations. "60 Minutes" recently did a report on corporations fleeing the US to avoid taxes. Transocean, the company that owned the oil-rig in the Gulf spill, is one of many companies that claims to be located in Zug, Switzerland.

DCJ: The "60 Minutes" piece basically defended this, treating corporations as victims who had no choice.

TM: The segment's on the Web site at CBS (March 27, 2011). One of the heads of Cisco gets the most empathetic treatment. He says the corporate tax rate in the US is too high and we owe it to our shareholders to do this.

DCJ: My Pulitzer was for exposing this kind of stuff more than 10 years ago. If anything's changed, it's the skillful marketing of the idea that corporations are being abused.

We have chosen to have this global multinational corporate environment. Certain things are going to flow from that decision. One of them is falling wages. The most generous people in the history of the world are American blue-collar factory workers, who have given up their opportunity to get solidly into the middle-class so that the rural poor of China can have a better life.

Companies have figured out on the international scale the same thing that they previously figured out on the national scale: take your profits in Delaware even though you earn them in New York and California. Get all the benefits of being in the United States, and take your profits in Zug, Lichtenstein, the Cayman Islands, and Bermuda.

This is also a big problem in Western Europe, and it's growing in Japan. There was an effort more than 10 years ago by all the big industrial countries to harmonize their taxes, so they could ignore transactions designed to escape taxes. One of the very first acts of the Bush administration was to kill this.

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