Helping the Rich Stay That Way

Maybe you didn't buy a racehorse last year. You were worried about what it would do to the lawn, or perhaps you just didn't realize that the IRS regards racehorses as a tax-deductible part of the "farming business," along with cattle and pigs. But that's all right. Next year you can always pick up a hefty deduction simply by changing your name, or you can incorporate yourself in the Cayman Islands and start racking up impressive business losses by issuing yourself big dividends. Maybe you'll even "lose" so much that the IRS will give you refunds going back for years.

Well, probably not you, of course. The message of the new book America: Who Really Pays the Taxes?, by Pulitzer-prize-winning reporters Donald L. Barlett and James B. Steele, is that slippery moves like these are available only to corporations and millionaires, many of whom are already taxed at far lower rates than the rest of us. In 1989, in fact, 1,081 people with incomes over $200,000 ended up paying no federal taxes at all, thanks to what Barlett and Steele call the "privileged-person tax law."

Airplanes offer two classes of service too, but at least the coach passengers don't have to pay for the folks up front. Not so with taxes. Corporations and the very rich have seen their taxes decline about a third in the past few decades, while those of us in the middle class now pay 329% more than we did 20 years ago, good-natured chumps that we are. The result is a quiet, ongoing upward redistribution of wealth from those who live from paycheck to paycheck to those who think of wages, if they ever do, as pesky "labor costs" they pay to the help.

But, you say, haven't the loopholes all been sealed shut? Sure, every tax bill from 1934 to 1993 has been hailed by Congress as the ultimate loophole plugger, but somehow there are still enough of these little leaks to drain off billions from the public treasury. Among them: luxury homes in which nothing goes on but "business," or tax dodges like the Beverly Hills Gun Club, which provides substantial paper losses for investors like Sylvester Stallone.

Loopholes, though, are just the colorful, exotic side of the story. One of the great bipartisan axioms of our times is that if you irritate the rich and the corporations -- for example, by insisting that they cough up some tax revenue -- they'll get all huffy and will refuse to create any jobs for the ) rest of us. So we solemnly nod our heads when the politicians assure us that cutting the taxes of the wealthy constitutes "tax reform," while increasing them would be a suicidal form of "class warfare."

Unfortunately, however, tax coddling doesn't necessarily put the overclass in the mood to generate decent employment. Barlett and Steele offer the case of Buster Brown shoes, which managed, by means of some cunning detours through the Caymans, to reduce its 1987 tax rate to 1.7% of sales. Meanwhile, the company was laying off hundreds of stateside employees, who for their part had no choice but to pay taxes on their unemployment benefits. Or contemplate the 1950s, when corporate tax rates were piratical by today's standards but unemployment was low and the middle class was busily expanding.