Our Indefensible Tax System

DCJ: The bad actor here is Congress. Congress is supposed to fund the IRS, and it has been steadily reducing the number of auditors and tax collectors the IRS has at the very time that the tax system has become vastly more complicated. And of course the country continues to grow, so there's an increasing number of tax returns coming in. The IRS responds by doing exactly what Congress expects of them. That shouldn't surprise anyone. All bureaucracies do what they are told.

MJ: There are some pretty scandalous examples in your book of the IRS' inability to go after tax cheats. For example, some people took out a full page newspaper ad broadcasting the fact that they didn't believe in filing taxes, and hadn't done so, and nothing happened.

DCJ: Eventually, after I wrote seventeen articles in the Times and sat in the IRS Commissioners office and had sharp words with him, they finally started indicting those people. They have tried eight people, so far, and they got convictions for all but one. But it took years of relentless coverage.

If someone ran an article on the front page of the morning newspaper saying, "Here are the addresses of the ten biggest drug dealers in city," you can confidently know that the police are on their way to, at the minimum, roust these people. But the IRS did nothing in response to the initial report in which I gave them a roadmap to these people. And that's because they pick almost all their investigative targets based on what the computer tells them. So if you don't file a tax return, or you file one that appears to be normal—you say you made $90,000 and you have normal sorts of deductions, when in fact you made $50 million—the computer won't identify you.

MJ: You mention many times in the book that the IRS was alerted to a tax shelter or a tax dodge by one of your articles. How much would you estimate you've cost potential tax cheats over the course of your career?

DCJ: A committee in Congress calculated the value of two of the tax dodges I exposed. They were valued at $262 billion over ten years. And that's just two of them. But of course, after I expose a tax device in the Times and it gets stopped, there is a whole industry of incredibly smart, highly-paid people who immediately say, "Okay, let's go find another one."

MJ: Are there any members of Congress who have both the courage and knowledge to fight for fairer tax laws?

DCJ: Oh, sure. There are a lot of politicians who want to do this. But they run into this falsehood that has been inculcated into a lot of Americans—that a progressive income tax is some kind of lefty scandal. Progressive tax of any kind is the most conservative principle in western civilization. Indeed, it is the very principle upon which democracy began in Athens 2500 years ago: Those that get the greatest economic benefit from living in a civilization should bear the greatest burden of maintaining that civilization. Now that's not to defend the current system we have. It is a complete and indefensible mess, and so there are people who want to fix it. But you can't fix it if everyone sees these things through a lens that's based on a lie.

When you say the tax system benefits the rich, there are a lot of people who respond, "That can't be true, look at the rate of tax. The people who are rich pay a higher rate than you or I." Well, yeah, but if you don't have to pay taxes on a lot of your income, then your real tax rate is a lot lower. And if you're allowed to pay your taxes thirty years from now instead of today then you're a lot better off. People need to have a sophisticated understanding of how the system works to appreciate that the posted tax rate really has very little to do with the taxes people pay.