Saturday, July 26, 2008

Perfectly Legal-a book report

Perfectly Legal
By David Cay Johnston

This is the first book written by Mr. Johnston. His second entitled “Free Lunch” I read first. It was so powerful I just had to read this one as well. To tell you the truth, I am almost sorry I did. As much as the other book depressed me this one is even worse as far as exposing the myriad of giveaways authorized by our Federal Government. Both parties are responsible. He calls them the money parties since the money Congressmen receive from the rich is the life blood they need to continue in office.
Not all of the schemes used by the rich are authorized but they might as well be since for decades now the IRS has been crippled to where they do not have the resources to do their job allowing fabulous sums of money to escape taxation. Even those unfortunate to be caught are let off with a fine instead of jail time which they deserve. I will share a few of the most outrageous stories. He tells about a man named Nick Jesson. He founded a successful business in Southern California and became wealthy. A large portion of that wealth is due to his refusal to pay income tax for his company or his employees. He cites section 861 in the tax code which he claims that salaries paid by American owned companies are not taxable. Mr. Jesson was bold enough to taunt the IRS by publishing an article in The New York Times 11/19/2000 stating what he was doing and why. He even boasted that the IRS sent him a refund of $217,000 including interest for payments he had made for the years 1997 thru 1999, the years before he stopped paying altogether. Other business men are mentioned including Dick Celata who owns Kristi Tool Co. He boasts that since inception of his company in 1979 he has never paid income tax. In spite of the public announcement up to the time of publishing this book the IRS has quietly acquiesced to this charade.
Registering a company in the Cayman Islands, Bermuda or other Caribbean Islands has made it possible for billions of taxable income to not be collected. Tax shelter schemes are too numerous to list in this review but they exist and save their clients billions in taxes not paid. Companies have found ways to use the foreign tax credit to shift funds and assets around to minimize US taxes.
There are tax loopholes that allow executives to have their pensions guaranteed while the rank and file employees have seen theirs disappear. All of this legal because of laws passed by our elected officials.
Most of us don’t even know about the earned income credit provision in the tax code. It applies to those making less than the minimum wage. For a family with two children making between $11,550 and $13,350 the maximum credit is $4,140. Certain Congressional leaders were so concerned about these poor people cheating that they insisted the IRS audit as many as possible. In 2001 there were eight times as many audits of these families as compared to those making over $100,000.
The alternative minimum tax was enacted many years ago to force the very rich to have to pay at least some tax. This was accomplished by taking away personal and other deductions. The problem for many non rich families today is that it was not indexed to inflation so as each year goes by more and more are forced into this alternate tax system. In 1995 about 414,000 paid this tax. By the year 2000 it was 1.3 million. It is estimated that by 2010 about 17 million families will pay. The problem is that it brings in so much money that Congress doesn’t want to give it back. What it means to these families is that the Bush tax cuts are not available to them in spite of the rhetoric to the contrary.
Once again Mr. Johnston has exposed the hypocrisy of Congress and by naming names exposed those deeply involved with promoting processes that deprive our government of the money needed to support it. I know many of you will say whoopee and so do I with the wasteful easy ways they throw money around but the issue here is that those of us still honest and paying our taxes should not carry the burden while others escape tax free. This is a book all elected officials should read and then take the needed steps to correct.
I always feel the need to put my two cents into any discussion on topics such as this. Filing my income tax is fairly simple as it only consists of pension, social security, interest and withdrawals from my IRA plus small amounts of the like from my seven years working in Canada. Even so I resent the lengthy process of calculating how much social security should be taxed and I can’t help noting the many deductions that other people are able to make either legally or otherwise. My point is that there is far too much written into the tax code. While I lived in Canada their form if I remember correctly consisted of four pages. Deductions were limited to yourself and family. No home mortgages or interest, furthermore thru an agreement with their Federal Government no Province tax form was required. All it consisted of was a line where your Federal tax was multiplied by a decimal number which meant that that portion of your taxes paid would be paid to the Province. Assuming that is still the case there is not much chance of cheating in Canada.
Read the book and discuss with like minded friends.

Jack B. Walters
3961 N. Hillwood Circle
Tucson, AZ 85750
(520) 722-2958
July 26, 2008

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