The Trickle-Down Shakedown

When it comes to paying taxes, David Cay Johnston has an ugly truth for you: You're getting screwed.

Let's be frank. You probably don't like paying attention to your taxes. Whether by computer, pencil, or proxy, the details are frequently boring, the process painful, and the results depressing. It's easy to extrapolate that queasiness and cringe each time you see a story about tax loopholes, tax shelters, or tax evasion. Which is understandable—maybe inevitable—but unfortunate. Because as David Cay Johnston, a Pulitzer Prize-winning reporter for the New York Times, details in his new book, Perfectly Legal, you're getting screwed.

Over the past 20 years or so—starting with the Reagan tax cuts—there has been a historic and little-remarked shift in the tax burden. Federal taxes still redistribute income, only now it's increasingly from the middle class to the extremely wealthy. For instance, Social Security taxes were increased in the early 1980s to pay for what was billed as a coming solvency crisis. Instead, they've financed a tax cut largely for the rich. Meanwhile, businesses have devised endless schemes to avoid paying their fair share—from 1983 to 1999 corporate profits stocked away in tax havens increased by 735 percent.

Such tax avoidance doesn't happen in a vacuum. As Johnston details, both Republicans and Democrats have encouraged it by, among other things, chronically underfunding the IRS. Between 1988 and 2002, the number of auditors dropped by 30 percent. Nowadays, just 4 percent of midsize companies face audits in a given year. The result is the second-lowest percentage of corporate taxes paid since the Great Depression. Those lost revenues eventually have to be made up somewhere—and increasingly it's coming from working-class Americans. A whole new reason to find taxes depressing.