BOOK REVIEW/Terence McDowell

Deciphering ‘The Fine Print’

David Cay Johnston is a Pulitzer Prize-winning reporter who has been called the “de facto chief tax enforcement officer of the United States.” His new book, The Fine Print: How Big Companies Use ‘Plain English’ to Rob You Blind (Portfolio/Penguin, USA), is about the many ways that corporations extract from you those extra nickels – which add up to thousands of dollars. Many of the mechanisms require the government’s cooperation; some of them are the result of seemingly unconnected sources; others are hidden in plain sight. I promise you, however, the explanation is right there before you in the fine print.

In the next 24 chapters Johnston then proceeds to expose the details of the fine print involved in many industries. A host of large industries, including banks, credit card lenders, electric utilities, health care, oil pipelines, Hollywood studios, property insurance, railroads and water companies, all have worked quietly to rewrite America’s economic playbook in their favor. Reading the fine print will raise your temperature from a simmer to full boil.

According to the now-dominant narrative, lower taxes are the only path to prosperity. Americans have been told for more than three decades that higher taxes equal less money to spend, that lower taxes equal more. That narrative is so utterly false one might call it economic garbage. So let’s set the record straight. Johnston writes “Higher taxes can make you richer or they can make you poorer; ditto for lower taxes. What matters in both cases are three factors. 1. What is taxed. 2. How the tax is applied. 3. What the tax money is spent on.”

Large corporations and wealthy individuals don’t play by the same rules as poor and middle class taxpayers. These days large companies rely on taxpayers to raise capital to build new factories and fill offices. Almost every brand-name company is in on these deals; state and local governments alone spend at least $70 billion a year of taxpayers money to subsidize factories, office buildings and arenas. The worst of these are laws in 19 states that let companies pocket state income taxes withheld from their worker’s paychecks for up to 25 years without telling them. More than 2,700 companies have these deals.

Taxes are not an absolute economic evil as portrayed as such by the anti-tax movement. Taxes can harness the buying power of the many to save money and improve society through joint purchases. We need to look at taxes both for what they buy for us and the price we pay when we let others reduce or escape taxes. Tax favors for the few are a form of taxation for the rest of us. They shift the burden of taxes from those who get these deals on to those who do not. In short, lower taxes can cost you more money.

The economic health of our society can suffer when we fail to properly fund basic services. Some examples are criminal and civil justice systems, police departments, fire departments, K-12 education, universities, parks, national defense, bridges and tunnels, airports, highways and others. Taxes are a key reason why the rate of death from accidents today is less than half what it was in 1902.Taxes have made us healthier, better educated and more productive; they’ve reduced misery and lengthened lives. Those are big things.

In the last chapter the author recommends actions to improve the tax code in several areas. He discusses competition, utilities, arbitration, banking and insurance, job subsidies, taxes, money and politics, and supply and demand.

The banking and insurance recommendations include: 1. Make banks eat their own cooking, requiring them to hold on to the loans they make and buy back every loan that sours. 2. The sale of derivatives requires regulation. The pension funds, endowments, investment pools and other money held in trust for others should be barred from trading in derivatives unless there is complete disclosure of fees, costs and spreads on trades.

No one should have to pay to have their tax return filed electronically, nor should two-thirds of the people with modest incomes that come from their labors and take standard deductions have to pay someone to prepare their tax returns. Institute a national “ReadyReturn” like the one tried in California. The government already has the data to determine the proper amount of tax.

For corporate taxes, separate book and tax accounting should stop. The biggest difference between the two is accelerated depreciation, which means letting companies write off equipment faster for tax purposes. More than 50 years ago, the claim that this would increase economic growth was shown to be false, and study after study since then has verified it. Requiring companies to pay taxes on their profit each year, with no deferrals, would plug a growing hole in your pocket.

The same solution – no more tax deferrals – should be applied to executives, movie stars, athletes and other very highly paid worker who can set aside unlimited amounts of money without paying taxes. The same anti-deferral principle should apply to hedge fund managers who should also have to pay taxes at the same rate as other people who get compensated for their services, not at the reduced rates for capital investments.

The complexity of some of the issues in many chapters will make The Fine Print a difficult read for many readers, but I believe that this is an important book that should be widely read. If enough people are incensed by these revelations and protest loudly to friends and elected officials, there is enough information to fuel more movements like Occupy Wall Street.

Terence McDowell is a clinical chemist with a doctorate in organic chemistry who retired after 30 years at the University of Oklahoma Medical Center and VA Hospital. He lives in Edmond, Okla.

From The Progressive Populist, September 15, 2013