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David Cay Johnston’s Response

Mr. Elkin,

There is an old newsroom proverb that goes like this:

Doctors bury their mistakes, lawyers see
theirs off to jail, only reporters sign theirs
for all the world to see.

I think we need a vigorous debate about tax policy and tax administration, one driven by sound insights instead of sound bites. I invite vigorous examination of my own work, which is signed for everyone to read and consider on its merits or lack thereof. And, unlike many reporters who make themselves unavailable, I list my email on the Internet, give out my direct dial phone and, usually, respond to people who write to me. I also respond to people on the record so feel free to quote from what follows, my trusting that you will do so in context.

So let me start with your stated premise: you appear to start from a premise that corporations and wealthy individuals find ways to pay too little tax while the rest of society pays too much, and that you have become an advocate of IRS and certain interest group positions while not fairly presenting other points of view.

I'm comforted to see the word "appear" because your assumption is both factually wrong and much too narrow. I say wrong because I have never written or said - and I do NOT believe -- that wealthy individuals and corporations pay too little or too much or that everyone else pays too much (or too little). What I have done is shown how tax burdens are changing, such as my story early last year that the average tax rate for individuals had risen two percentage points while the average corporate tax rate had fallen by, as I recall, four percentage points. And I have written about cases in which judges found evasion by brand name companies, certainly a matter of great public interest not just to individuals, but to competitors who have suffered a competitive disadvantage because they obeyed the law. I do start from a premise. My premise is that taxes are at the core of our democracy, that they are the method by which we pay for this wonderful free land in which people can speak their minds, seek their fortune and live in relative peace, that they are the price of America. We can decide to tax ourselves more or less and, in turn, we can decide to buy more or less with our taxes in terms of defense, justice, education, research, exploration of the heavens and care for those who are weak or disabled or otherwise unable to make their own way. And we can decide to spend our money in whatever way we choose, more of this, less of that. But the point is that we choose. And we live with the consequences of our choices.

Taxes are complex -- and very little understood. Tax is its own language and, much like the mass before Vatican II, it has been kept from the people by high priests of tax. I am a translator who brings the vernacular to tax by speaking to my readers in plain English.

I also believe that knowledge is power and that those who have the knowledge of tax have, as is the nature of most humans, abused that power for their own purposes. This, surely, is not an original insight. Does not everyone casually denounce the tax lawyers and accountants who devise schemes to reduce taxes for those who pay their fees? And this cynicism has in turn bred a popular resentment from that misunderstanding, one that politicians in both parties (and the minor parties, too) exploit for their own purposes of raising contributions and keeping their positions of power.

I suggest you get a copy of the April issue of The Washington Monthly and read my review there about the flaws in the book "The Cheating of America," which deals with its shortcomings on substance. I also believe that the news media has been complicit in this superficial debate by focusing on what politicians say, which matters little, and not on what they do, which matters greatly. That is why I proposed, before my hiring, that I cover tax policy and the I.R.S. from New York. There is history to this. Back in November 1980, when I was at the L.A. Times, I proposed that I be made the second White House correspondent, that I continue to work from L.A. and that I be allowed to travel anywhere except to the White House or with the President. My premise was that I could do a better job of telling people what their president was doing by covering his actions (executive orders, budget issues, etc.,) than was being done by covering what he said. I was turned down. I think my recent Pulitzer Prize for beat reporting on the I.R.S. and tax policy shows that I was right the first time I had this idea.

I believe a reasonable reading of my work is that I am interested first and foremost in the substance of tax. I actually read the tax laws. I read regulations and court decisions and treatises. I wish more reporters did. And from time to time -- as on the issue of farms and the estate tax - I go out and test rhetoric in the real world to see if the rhetoric stands up. I am sure it upsets anyone who has been voicing a position that lacks merit to have the whole world be told on the front page of The Times that what they said is not so and that they cannot produce a single example to back up what they have been saying. I also think that's exactly what journalists are supposed to do. I think journalism would be a lot better off if we had a great deal more enterprising, issue-based coverage and, indeed, in the last six years this kind of reportage has flourished at The Times even as other news organizations have cut staff, added fluff and brought us more and more of the kind of infotainment that is so powerfully attractive and repulsive at the same time. My point here is to keep the eye on the doughnut, not the hole.

So my first premise is that this is important work and serious business and I am blessed that my editors were willing to let my undertake this enterprise, which a few of them thought was a fool's errand back when I started this in February 1995. If you have read all of my work surely you have noticed that my 1995 and early 1996 stories were thick. Take a look at my story about Amcor, a tax shelter case that I wrote was thoroughly mishandled by the I.R.S. no matter how one looks at it. I picked that story precisely because I knew it was vast, extremely difficult and would serve as an excellent class for me in how tax works in the real world on many levels. Unfortunately my readers had to suffer through this early term paper. Note what I wrote above - this was a case that made the I.R.S. look bad no matter how you looked at it. If you go back and read the story you will find language stating just that. But more will follow on your erroneous premise that I am an advocate -for the I.R.S. My clips show that I have been a severe, and enterprising, critic of the I.R.S. Read my front page story of Sunday, Nov. 19, about small business owners who have stopped withholding taxes from their workers and have stopped filing 941s (a term you won't find in the story because that would, of course, be high priest language). These articles criticized the I.R.S. for failing to 1) even know about these cheats and 2) failing to act. And since then I have written again on Feb. 10 (exact date from memory), Feb. 19 and several times since that the I.R.S. still has not acted, except to send letters to these cheats telling them that the law requires the payment of taxes. These articles were interpreted by the advocates of the hoax theory as "cheerleading" for the I.R.S. -as you can read their rants on the Internet at Yahoo egroups, legality-of-the-income-tax. I think this speaks volumes about their ability to accurately read the tax laws. The key here is that the focus was the I.R.S. for failing to act and I have stuck with this story and continued chronicling the failure of the I.R.S. to act, including my recent story that the California tax authorities did act with a raid on one of these businesses on May 2.

I think going after the authorities for failing to do their job -and continuing in that failure long after the spotlight has been thrown on them - is basic to journalism, to our mission of holding government accountable. And, of course, there is the issue the unfair commercial advantage these cheats have against their competitors who obey the law and pay their taxes. In writing about this issue I have also given voice to the arguments of those who claim that the tax laws are either a hoax, apply only to federal employees or to foreigners and foreign-owned.

Now imagine that last Nov. 19 that the front page of The New York Times had carried a story that named 23 drug dealers and the street corners they work. Do you think that the sun would have set on Manhattan before the cops would have rousted every one of these criminals? And can you imagine the public outrage if the cops had instead just mailed each of these drug dealers a letter saying it is against the law to sell drugs?

I believe that people are required to obey the law and that the failure of those charged with enforcing the law is a significant issue that deserves serious and sustained coverage to hold these officials accountable. In other stories I have shown how the I.R.S. has relentlessly pursued the Boyer family and blown three opportunities to collect estate taxes in a case that demonstrates the lack of sound judgment by the I.R.S. in pursuing litigation. And I recently broke the story that the I.R.S. quietly decided not to pursue a million people who owe back taxes that are large enough to be worth collection efforts because its management believes it lacks the necessary resources. (Just today Tax Notes, following up on my work, revealed that the write-off totaled $10 billion!) I also have tried to show how policy proposals work in the real world. In 1996, for example, I took Steve Forbes' idea of the flat tax and persuaded two United States Senators - Dole and Gram - to release their income tax returns and then redid those returns on the flat tax postcard along with those of Clinton, Gore and Lamar Alexander, as well as a Joe Average so people could judge for themselves. I also showed how President and Mrs. Clinton paid more than twice as much in federal income taxes as the law required - and reported on how they changed their behavior the next time that Mrs. Clinton received a book contract. Go compare my coverage to that of any other major newspaper's on the Clintons' taxes, including the year after my original story. You will find regurgitation of what the President's flacks said. There's a term for that - he said journalism (as in da da da da comma he said). I despise he said journalism.

What I did not do was let myself be used by politicians holding staged hearings with witnesses whose unrebutted testimony, upon further inquiry by The Times and by reporters at Tax Notes and The Wall Street Journal, did not hold up. And, of course, Congress's own investigative arm found no systematic abuse of taxpayers, a report that some in Congress tried to suppress and which got nowhere near the coverage of the original hearings

So here's the bottom line - I dig. I am not part of the herd. I don't rewrite press releases. I sit at my desk or on the airplane or at my home and I read the law, read tax bills, read regulations, read treatises and then I think. I pour over statistical tables and keypunch data into spreadsheets and hunt for patterns and then, when I find something, I go out and find people to make the dry facts come alive so that ordinary people can grasp its significance. In doing this I have quoted and written about just about every conceivable point of view on taxes, even the advocates of loony theories with no basis in law. And at times this has angered some people because I went out and tested their statements, as with the farm and estate tax. Most assuredly my coverage has dealt extensively with fairness, with equity, and with integrity both in the enforcement of the law and in the debate about tax policy. These are all core issues in tax. But from my story about the Bermuda tax heaven deal - which dealt with the very different views of competitors in the property and casualty insurance business - to my stories about tax evasion by specific companies which I named and the criticism of this conduct by prominent tax lawyers whom I also named -- to my stories about the poor being audited more than the rich- to my work that has made the alternative minimum tax an issue when it was not on anyone's radar until I started detailing how it has morphed into a tax on the upper middle class and even single mothers with modest means, but not the intended group and everything else I interviewed and quoted people from a very wide variety of view points. And I believe I have presented these viewpoints with care to respect nuances from Kip Dellinger's views on the lack of enforcement against the small businesses which stopped withholding to the White House position on tax simplification and the alternative minimum tax.

The other day a reporter asked me about my quoting estate tax lawyers in my Jan. 29 front page story on how, under the design put forth in the President's bill, vast new opportunities for income tax avoidance would be created for the very wealthy. I think most people would see that as exposing a loophole in the making. Significantly, the Joint Committee on Taxation staff issued a report six weeks later which supported exactly what I wrote and put the price at $185 billion over 10 years. The President, the day after my farm estate tax story, changed his position and put forth concepts that would not allow such massive income tax avoidance. The reporter who called me questioned whether I had adequately noted the interests that estate tax lawyers have in preserving the estate tax to save their jobs. I told him that the interest was pretty obvious, but that right up top in the 5th graf the story said that the proposed estate tax repeal would be a bonanza for estate tax lawyers - and that, besides, anyone smart enough to be a top estate tax lawyer will not have to worry about where his next fee comes from even if the estate tax is repealed instantly. These lawyers will just move over to advising on other forms of tax minimization and avoidance. The reporter who called me was focusing on the kind of nonsense that infects journalism today, on whether I had used the politically approved sources. I told him I went to the best sources. Now to whom should one go for a story about how the specific terms in the President's bill would be used in the real world? Plumbers? Shoe salesman? Or leading estate tax lawyers? If I was covering street drugs my sources would be drug dealers as well as cops, and in covering tax I have cultivated as sources, and quoted, tax cheats and tax lawyers, statisticians and economists, enrolled agents and revenue agents. From Bill Niskanin at Cato to Bob McIntyre at Citizens for Tax Justice you will find them all under my byline.

And as I hope I have made clear above I don't think what you think I think. I do hope that my work has helped people understand the principles of tax and has prompted people to ponder real issues so they can decide what kind of tax system they want.

That said, thank you for your kind words about my recent award. I look forward to reading your critique and hope you will be kind enough to email me a copy when it is published.

David Cay Johnston

If you enjoyed this article, be sure to check out Palisades Hudson’s book, Looking Ahead: Life, Family, Wealth and Business After 55, now available in paperback and as an e-book.

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