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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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One out of every five banking deposits in the world is in the Cayman Islands -- except there's nothing there. The "60 Minutes" piece showed that Weatherford, a $10 billion a year company, rents a conference room so that they have an address in Zug, Switzerland.

TM: Like the folks who rent a mailbox as their corporate address because they don't actually have a company.

DCJ: Exactly the same thing.

Corporations are an effective, efficient means to run companies and build wealth. But, instead of them being the servant of everyone, we have instead made them our ruler. Much of the ownership of corporations is very fleeting. People in hedge funds who own a stock sometimes for a second have a greater voice than employees who expect to work there for years and customers who rely on the company for years.

The inevitable result is that we are pushing the burden of taxes down the income ladder. Today in every state, there's a heavier tax burden at the state and local level for four-fifths of families than for the top one 1 percent. At the federal level, a worker who makes the median wage, $26,000 -- half of all workers make more, half make less -- pays a heavier burden than the top 400 taxpayers who make almost a million dollars a day.

Then there are hedge fund managers who make billion-dollar incomes year after year in America and pay no taxes.

TM: They pay no taxes?

DCJ: That's right. The media says that they pay a 15 percent capital gains, but they only pay that when they cash out.

TM: If that's how you make your living, you don't cash out.

DCJ: John Paulsen made $9 billion in the last two years alone. If you've got $9 billion in your account, you go to your banker and say I need to borrow $300 million, and he loans it to you with an interest rate currently of less than 2 percent.

TM: Corporations have billions in profits sitting overseas, which they claim they'd bring home to help the American economy if they could get a tax break on it. Give us an amnesty for the good of the country. Talk about that.

DCJ: The driving force is the assertion that if they didn't pay any taxes, we'd all be better off. I can't tell you how many blue-collar and office workers have told me that their boss has said to them that if he or she or their company doesn't get a tax break, they're going to cut their wages.

I was at a conference sponsored by the people who own [where Johnston writes a column], a non-partisan non-profit that for 40 years has been fighting to make the tax system transparent and fair. All the talk was about lowering the corporate tax rate from 35 to 25 or 20 percent. And I said to the senior vice president of the US Chamber of Commerce, "If you think this is complex and difficult and unfair, why don't we get rid of the corporate income tax?"

We would have to have some rules about expense accounts and travel, etc., so that executives and owners of publicly traded businesses can't live off the company. But that's nothing compared to the complexity of what we have now. Let's just reduce it to zero, and raise the tax you pay on any money you take out of the business. This guy immediately dodged the question, saying he'd have to see the exact details before he could comment. The fact is, that wouldn't be popular with business at all, because they don't want to pay any taxes. There's a whole body of literature that says that the very wealthiest people should not pay any taxes because they create jobs.

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