Shawn Vestal: Speaker David Cay Johnston shines light on ‘stealth subsidies’

David Cay Johnston is worried about creeping socialism.

He’s concerned that the tax code is too complicated and unfair. He thinks that we are taking too much money from average, hardworking Americans and subsidizing those who don’t need or deserve it. He thinks it’s time to return to the country’s fundamental economic principle of free, competitive markets.

But Johnston, the country’s pre-eminent tax journalist, isn’t talking about welfare queens or food-stamp surfers. He’s talking about the very richest Americans and the very biggest businesses. Johnston’s career has been spent unearthing the hidden ways that the tax system subsidizes the people who need it least, shifting the burden disproportionally onto working Americans – a system that contributes to the yawning income gap and the ever-greater concentration of wealth in fewer hands.

“America is slowly getting poorer even though the economy is getting bigger,” he said in an interview this week. “I believe in competitive markets, and I believe in capitalism. I don’t believe in corporate socialism, and I don’t believe in stealth subsidies.”

Johnston is speaking in Spokane and Pullman this week, hosted by Washington State University. A Pulitzer Prize-winning former New York Times reporter and author of three books, Johnston has made a major impact on the way that journalists cover corporations, income inequality and taxation. Often, he has done this by examining public records where the truth is hidden in plain sight – loopholes tucked ingeniously into the tax code. He said an executive at Coca-Cola once wrote him a letter that “expressed admiration that I had pieced together, through public records, what he had tried so hard to hide.”

“Our tax and regulatory laws are full of these provisions that nobody knows about,” he said.

His lectures here this week are titled: “Taxing the Many to Give to the Few: How Government Creates Inequality.” He said the tax system is rife with breaks, exemptions and loopholes for large corporations and the wealthiest Americans – from highly technical breaks for gas pipelines to subsidies for executives’ personal use of corporate jets. Beyond that, in Johnston’s analysis, is the simple fact that working people pay a much higher income tax rate on wages than investment income, and that the actual taxes paid by the very richest Americans are falling even as their incomes rise.

But don’t these tax favors work as incentives? Don’t they help drive economic activity for everyone? Isn’t the problem with the American economy too much taxing and regulation of job creators, and the consequences of redistribution from makers to takers?

Here’s how Johnston put it in a 2012 interview: “(W)e have redistribution in this country, but it is very much upward. You know, the phrase ‘trickle-down’ was invented to mock Ronald Reagan’s tax policies. But the reality is, it’s not trickle-down, it’s Amazon-up, Niagara-up.”

Between 1966 and 2011, according to his research, the average income adjusted for inflation for the bottom 90 percent of Americans, as reported on tax returns, rose just $59. If that increase is represented as 1 inch, he has said, then the incomes of the top 10 percent went up 168 feet. The top 1 percent? Eight hundred and eighty-eight feet. And the top 1 percent of the 1 percent – the “plutocrat class?” Almost 5 miles.

Meanwhile – amid a clamor about how taxes are stifling business – the tax burden has been incrementally shifted downward to “very subtly take money from the many and redistribute it to the already rich few,” he said.

He gave an example: In 21 states – not Washington or Idaho – corporations can use tax incentives that allow them to pocket state income taxes they withhold from workers. In other words, wage-earning workers pay their taxes to big, multinational corporations.

He gave another: When the Bandon Dunes golf course was built on the Oregon Coast, public subsidies worth tens of millions were used to expand the local airport to benefit the course. Meanwhile, Congress had allowed corporate executives to deduct virtually all the cost of using their corporate jets for personal purposes. Their taxes go down when they fly somewhere for fun – as many do to the Bandon course. “This incredible subsidy is what makes the golf course work,” Johnston said.

But hasn’t that course been a shot in the arm for the local economy, including taxes for local governments? Yes. But Johnston illustrated one way in which the preferential tax rates for big business get hidden: In 2010, the golf course was among the biggest taxpayers in the county, paying more than a half-million dollars in property taxes, according to a report in the Oregonian. But the average property taxpayer there paid a rate that was four times greater.

Johnston opposes these policies in no uncertain terms, but he said he’s more troubled by the secrecy and stealth involved.

“If people want to say, ‘I want to pay taxes so Boeing and Warren Buffet and General Electric can make more money,’ OK, then let’s do it,” he said. “But let’s acknowledge it’s going on.”