David Cay Johnston is one of the few journalists who understand and write about the inner workings of the U.S. tax code. He’s made a fine career of chronicling how large companies and the wealthy have plundered the government’s coffers, often with help from the politicians who write our tax laws. His accolades include a Pulitzer Prize for exposing outrageous loopholes used to shelter vast amounts of income.
His latest book, “The Fine Print,” expands on that theme, showing a gamut of ways in which big corporations, especially regulated utilities, cheat ordinary people (as well as each other) out of their money. Some of the examples could leave you feeling so disgusted and powerless that you might wonder if you were better off not knowing. But if you enjoy learning about the dirty little secrets behind the ways powerful businesses make their profits, you probably will like this book.
There’s not much of a narrative thread here. The book mostly is a compendium of anecdotes, accumulated through Johnston’s reporting over many years. It starts with an entertaining guide to how phone companies rip you off and what all those ridiculous, misleadingly labeled charges on your monthly bill are for (my favorite: An “FCC Charge for Network Access” goes entirely to the phone company, not the government).
Johnston shows how monopolies and duopolies such as railroads, cable TV providers and power companies capture their government minders and abuse their pricing power. For example, “every time you turn on a light in your home or buy a product made with the help of electricity, you’re paying more than you would in a competitive market,” he writes. In large part that’s because most electric utilities aren’t sensitive to the price they pay railroads for shipping the coal that is used to generate electricity. State commissions, often stacked with industry veterans, let utilities add to customer bills whatever they pay, as long as the price is deemed “reasonable.” And there is no pressure to lower rates for hauling coal, “because ‘reasonable’ means what other monopolies are charging.” None of the behavior he describes is all that surprising, in the sense that Americans are accustomed to getting fleeced and by now are difficult to shock. The money at stake often works out to only a small amount per person.
Yet each chapter validates what many Americans have come to believe: Much of our economy is rigged. Johnston posits that a big reason it has gotten this way is that we’ve let huge corporations take over our political system, so that laws and regulations too often are written and enforced primarily for their benefit. Rather than encourage competition, which holds down prices, government lets our most influential companies escape it. So in telecommunications, for instance, we wind up with the AT&T-Verizon duopoly, which, through one technology or the other, controls more than 60 percent of the U.S. telephone business.
Gone are historic notions of fair commerce, Johnston writes, which would make it unconscionable for a cable company to charge $5 a month to rent a handheld remote control, when you can buy your own for less than $10 retail. (The point is debatable, but he did make me feel stupid for renting mine.) Sallie Mae, which lends money to students, charges some borrowers $300 to issue a $7,000 check to their school.
Price gougers shield themselves from lawsuits by sticking mandatory arbitration clauses in their sales contracts. Johnston illustrates the point with the story of a gullible school bus driver in Washington who let a used-car dealer talk her into borrowing more than $20,000 from Wells Fargo to buy a grossly overpriced lemon. The car broke down, she got placed on temporary disability, the bank repossessed the car, and then the bank threatened to take her house. She tried to sue the dealer and the bank, but a judge said her contract didn’t allow it. Lucky for her, law students at an American University legal clinic took her case and won an appeal, which eventually led to a settlement.
Some pipeline operators that are structured as “master limited partnerships” charge their customers for the supposed costs of their corporate income taxes — even though they’re exempt from paying such taxes. Their customers — the energy companies that produce fuels and natural gas — of course pass on those costs to the rest of us. Johnston writes: “You pay for someone else’s taxes at the gas pump and when you boil water. You pay for profits that are wildly beyond ‘just and reasonable.’ And if the pipeline is bankrupted you will pay new, even higher rates. And on top of all that, because the government never gets the corporate income tax money you pay, you will have to pay higher taxes, accept fewer government services or pay more interest to finance government borrowing.”
Along the way, Johnston shows how water companies, banks, workers’ compensation plans and 401(k) managers take advantage of customers, employees and taxpayers. There’s a chapter on Wisconsin officials paying Hollywood studios for shooting movie scenes in their state — one of those headline-grabbing “job creation” programs that politicians love but that produce no real economic benefits. Others who get skewered include Grover Norquist (for making common cause with the tax-preparation industry), Goldman Sachs (for taking tax breaks on its new headquarters) and Warren Buffett (for his railroads’ and utility companies’ monopolist behaviors).
Johnston bemoans the state of the nation’s tax-policy debate and champions the principle that taxes should be levied according to ability to pay. “Once a wide cross section of Americans understood that taxes could save money and help grow the economy,” he writes. “That higher taxes are inherently bad has become the default rhetoric of politicians from both parties, an unassailable truth trumpeted by network and cable television news personalities.”
As an example, he tells the story of how the town where he lives in Upstate New York raised taxes at the behest of its residents so it could start arranging for trash collection. He says the result was better service and lower costs, because the economies of scale were greater than when all the townspeople were hiring and scheduling their own garbage haulers individually.
His parting advice, on the last page of the book: “Reform begins with you.” Hope springs eternal.
THE FINE PRINT
How Big Companies Use “Plain English” to Rob You Blind
By David Cay Johnston
Portfolio/Penguin. 305 pp. $27.95