Tax laxity: how a kinder, gentler IRS breeds cheats.

• Author: Thompson, Nicholas
• Position: Perfectly Legal - Book Review

Perfectly Legal By David Cay Johnston Portfolio; $25.95

David Cay Johnston is one of this country s most important journalists. A nine-year veteran of the tax beat for The New York Times, Johnston combines the best of Eliot Spitzer and Seymour Hersh. He's an old-fashioned crusading reporter who mines the internal revenue bureaucracy and comes up with potent, pertinent reports on tax fraud and other financial shenanigans. Whether reporting on the latest shelter scare or the Bush administration's decision to boost its economic numbers by counting fast food work as manufacturing, Johnston's stories always have steam coming off them. Now, he's poured that decade's worth of hard-won expertise into book form, arguing the tax system itself deserves much of the blame for America's growing economic inequality.

The book's title--Perfectly Legal: The covert campaign to rig our tax system to benefit the super rich--and cheat everybody else--isn't subtle. But it does capture the first half of the book, in which Johnston describes how the "political donor class" has manipulated tax policy. Here, Perfectly Legal floods the reader with telling statistics and stories. For example, Johnston notes that the share of national income held by the richest 13,360 households grew by more than 400 percent during the past 30 years--while dropping by 22.5 percent for the bottom nine-tenths of taxpayers. Later, he describes how a minor tweak to the tax code in 1985 allows all executive who flies in a corporate jet for personal reasons to value the perk at half the price of a first-class ticket on his income taxes. Because the company also gets a deduction based on the real cost of sending the executive in the plane, Johnston notes, "it would be cheaper for taxpayers to give away first-class tickets to executives rather than subsidize their personal use of company jets."

Such details are shocking. But much like a Hollywood car crash, they're also familiar, and reciting them "en masse" is not Johnston's strong suit. He's much better at explaining the harm done by parts of the tax code most people only dimly understand, such as the alternative minimum tax, or AMT. To the extent that most people know about the AMT, they think of it as something that hits the super-rich but is now migrating down to plain old rich people. In fact, Johnston explains, pretty soon it's going to start hitting the middle class far more stiffly than upper-bracket taxpayers. The AMT was intended to...