David Cay Johnston is a journalist who was awarded the Pulitzer Prize for Beat Reporting in 2001 for his investigative reporting. He has written for the Los Angeles Times, The New York Times, and The Nation, among other publications. Johnston is well known for exposing the loopholes in the U.S. tax code and economic system in his writing, and for discussing the effects these have on American citizens and society. Johnston’s latest book, Divided: The Perils of Our Growing Inequality, explores the polarizing effects of income disparity in the U.S. 


The Politic: Describe your typical day.

I get up early and read three newspapers delivered to my driveway—The New York Times, the Wall Street Journal, and the Rochester Democrat Chronicle. I spend the next couple hours reading through academic journals, newspapers online, magazines—I take over forty magazines, from National Review to The Nation. And then around nine o’clock, if I have something to write for a deadline, I’m on it. If I need to talk to people, I start making phone calls, when people get to the office. Probably around 9:30, so people have time to get their heads together. Understand that I work from home, okay? If the weather is nice, I go out in my garden. I call it the Tim Burton garden, because the work I did for him paid for landscaping our home. I work outdoors, which I’m doing right now. If it’s winter and the weather’s bad, I work inside. Around early afternoon, I take a nap. I’ve done that my whole life. It used to drive editors crazy that I’d put my head down on my desk and take a twenty-minute nap. And then I go back to work until whenever I run out of gas, somewhere between five in the evening and eight in the evening.

The Politic: How has that routine changed over the course of your career?

For forty years, I worked for newspapers. For the first eight of those years, I went to an office every day or was out on the streets. Starting eight or ten years into my career, I started working at home. I’ve done a lot of that all my life. When I worked for The New York Times, I flew to New York on Mondays or Tuesdays. We bought a tiny studio apartment, eleven and a half by fourteen feet, plus a bathroom, for me to stay in. It’s basically the functional equivalent of a hotel room – you can stay there for a night and fix dinner. And I spent an enormous amount of my life in airplanes. For years, all the years I was with The New York Times, I think I averaged about 120 flight segments a year.

The Politic: So what made you originally want to pursue journalism?

I didn’t want to be poor. When I was in junior high school in Santa Cruz, CA, I declared my intention to be an LAPD cop, a big homicide detective, become a prosecutor, and run for office or be a lawyer. When I was eighteen years old and had just graduated high school, I was recruited by the San Jose newspaper to be a staff writer. Tells you how the job market has changed. When I was nineteen years old, they hired me as the youngest staff writer. When I left the paper four and a half years later, I was still the youngest staff writer. As soon as I got into journalism, which was when I was in high school—I started writing for a weekly newspaper, I suddenly realized, I could affect public events. I would go to the school board meetings for the weekly paper, and no one had calculators in those days. I would do longhand division and write stories about the school board spending and property taxes. Newspapers will run stories that say things like, the average home with a value of $53,200 will have its property taxes go up by x dollars. I would just convert that into an index, and say, for every thousand dollars, your property taxes will go up by x dollars. This is when I was seventeen years old. People took notice of this immediately. In fact, one of the reporters for the local daily, The Santa Cruz Sentinel,came up to me and said, “You’ve gotta stop doing this, because my boss wants me to do what you’re doing and I don’t understand what you’re doing.” And so, I discovered that you could actually affect public events, you could tell people things they didn’t know, and when I was eighteen or nineteen years old, I had journalists from papers like the San Francisco Chronicle, following my work. And it was like, “Wow!” And because there was a union, the newspaper guild, I made, in the year that I was twenty, including some other entrepreneurial stuff on the side, about $65,000 in today’s dollars when I was twenty years old. And I had paid vacation and health insurance. So by the time I was twenty-two, three years after they had hired me, I bought a house. My parents never owned a house. I’d gone to work at age ten, worked full-time at thirteen and helped my parents – my dad was a hundred-percent disabled veteran from World War II and my mother was a disowned heiress. But at twenty-two, I bought a house. When we had unions, workers in America got a much larger share of the national income pie. Even if you were not in a union, you benefitted, because it drove up the general level of wages. One of the reasons we’re in such economic trouble today is that by reducing unions, we’ve put downward pressure on everybody’s wages, and we see the result of that. The country is falling apart physically, people are in debt up to their eyeballs, and we have all sorts of human misery, because we’ve changed how we divide the income pie.

The Politic: Based on the recent anthology that you edited, Divided: The Perils of Our Growing Income Inequality [which includes writers such as Barack Obama, Adam Smith, and Johnston himself], what do you think is the biggest misconception about inequality? 

There are so many. Let me think about this for a second. I was writing about this way before other people—my first inequality clip in The New York Times was in 1995, and I wrote about it before The Times. The biggest misconception is, ‘There’s nothing we can do about it.’

The Politic: So what can we do about it?

Well, my trilogy that I wrote earlier on the American economy, Perfectly Legal, which won the investigative book of the year award, Free Lunch, which is about subsidies, The Fine Print, which is about rules of competition, show that we’ve rigged the whole game in this economy to favor an incredibly narrow class of people, the top one-tenth of the one percent. And the top one-tenth of the top one percent of Americans’ income has gone from holding roughly 3% of national income in 1973 to around 11% today. And the top tenth of one percent starts at roughly about $2 million. But if you got there because of market activity, God bless you. If you got there because you sold a lot of songs or you sold a better mousetrap, or something else like that, terrific. But an enormous number of people who are in that category got there because we cut their tax burden by 60% compared to the sixties.

We have all these hidden rules that Free Lunch explains where taxpayers are being forced to put up the money for businesses—new factories, new office buildings, new hotels in America, are being funded by your tax dollars. General Electric has refurbished its Ohio factory, and 92% of the cost came from state income taxes, which came from its workers paychecks that it did not have to give the state of Ohio, and there are almost three thousand big companies that tax their workers. That is, the state income taxes do not go to the government—they’re kept by the employers. And people don’t know about it, because as far as the government is concerned, they’ve paid their taxes, even if they’ve let their bosses keep the money. And this isn’t capitalism. This is corporate socialism.

I’m sixty-five years old. When I was a boy, every town in America had its own department store. It was a local family, or families in cities of bigger size, who owned it. Now, they’re all national chains. It’s government policy that has resulted in this massive redistribution. The average income of the bottom 90% of Americans reported on tax returns in 2012 was likely lower than it was in 1966. This is all in inflation-adjusted dollars. If you go back one year to 2011, it was up $59. Do you think that if your income went up $5 that you would notice, even as a student? There’s this imperceptible change in income over years. Measure that as an inch – $59 is one inch. The top 10%–their line is 164 feet. That includes all the people way up at the top. The top 1%–their line is 880-some feet. But in fact, that’s misleading. When you look at the 1% of the 1%, that’s roughly 16,000 households in the country. That’s 4.9 miles. From 2009 to 2012, of all the increased income reported in the United States according to IRS data, 95 cents on the dollar went to the 1%, but almost exactly a third of it went to the 1% of the 1%. The games are all going on. The 1% starts at about $360,000. So if you have two 60-year-old, tenured professors at Yale, one in the Medical School and another is a law professor, they’re in the 1%. Half of the 1% makes less than $500,000. The bottom half of the 1% make about $300,000. They haven’t gone up very much.  It’s the top tenth of 1% ($2 million and above) and the top hundredth of 1%, that’s where all the games are going on. On top of that, large amounts of income in those groups, by law, don’t have to be reported. So you have huge economic gains that are not counted as gains by the tax system. So the hedge fund managers, every year about two dozen of them make a billion dollars a year or more. But if you look at the taxpayer statistics, they’re clearly not there. And that’s because the average income of the top 400 taxpayers is in the neighborhood of $200-300 million; because if you’re a hedge fund manager, you defer all the income back into your fund, and it goes tax-free. And people have no idea that people at the top literally pay little or no tax. That’s why I knew Mitt Romney would never release his tax returns, because I knew he paid little or no tax in that number of years. He probably paid some tax ever year, but in single digits.

The Politic: A lot of your work goes against common feelings about taxation — that we should like taxes. So a lot of your work may not be easy for people to accept; what do you find to be the hardest for people to accept about your work?

First of all, let me challenge the premise of your question. Taxes aren’t ‘good’; taxes are what civilization is. They are essential. If you don’t have taxes, you don’t have civilization. If you don’t have civilization, then you live in a society where there is no wealth creation, and if you have any wealth, you have to hire a bunch of thugs and hope that your thugs are tougher than somebody else’s thugs who are going to come and kill them all and kill you. There is no civilization without taxes. And many people are under this idea that the way life is — generally, we’re a pretty peaceful country in the US. It doesn’t have to be that way. It is that way because we’re civilized. It’s like the Oliver Wendell Holmes’ quote, in which he essentially said, I enjoy paying my taxes because with them I buy what I value most which is education, which is civilization. I don’t like paying taxes, and I’m especially unhappy that I pay taxes at a significantly higher rate than people like Warren Buffet. So, what I’ve been trying to do is get people to understand how the tax system actually operates, instead of these myths that the people who get rich off the tax system are perpetrating every day.

The problem I have is that all sorts of journalists who have done no in-depth study whatsoever—I mean, most journalists just quote what people say, they have no idea what they’re quoting them about, they don’t understand them deeply. I didn’t either, until I started studying. I had no idea that when I set to take up the tax system that I was going to learn what I learned. I was as wide-eyed and astonished as I could be by what I found. I figured, yeah, there are wealthy people who figured out ways to game the tax system, but I didn’t realize we had it institutionalized.

Let me give you one of my favorite examples, that happens every time you put gas into your car. Embedded in the cost of that gasoline is the tax on the profits of the gas company that moved the crude oil or the gasoline. I mean, pipelines are legal monopolies, so you’re going to have to pay the taxes through your rates. That’s the reality of it. But here’s what you didn’t know until I came along. Pipeline companies are exempt from the corporate income tax, but they get to collect what’s called grossed-up tax. So, if you make a billion dollar profit, if you just had the regular tax, they’d give you $350 million. But because they have to gross it up, it’s $540 million – 54% override, to net it out. But they don’t pay the tax. They’re exempt from the tax! That’s just one of numerous, scores of devices that I have exposed. If you walk into many, new big box retailers, the sales tax that you pay at the register never goes to the government. It is kept by the owners of the store or of the mall and used to pay the cost of acquiring the land and building the store. Did you know that? Now imagine that your parents are in the business of running, say, a stationary store. And a new big-box stationary store comes into town, and they get to use tax dollars that your parents had to pay for out of their revenues. It’s guaranteed that your parents’ business will die and the other business will profit. And nobody knows about these things! So there are all sorts of people who will dismiss what I do. I find it very annoying—all sorts of people believe that I hate business. The New York Times ran a review of my book Free Lunch without saying what was in it—and I wrote a letter to the editor which you can find on the New York Times website—that said I hate corporations. I don’t hate corporations. I’m the co-founder of a corporation. It’s the rules we have around corporations. I mean, I teach my students, corporations are important, efficient vehicles for wealth creation, but they shouldn’t be gaming the system and getting all these benefits that nobody knows about. And, frankly, a lot of people only want to reaffirm what they’ve heard. They don’t want to learn something that challenges what they think is true.

The Politic: When you investigate issues like tax policy, inequality, or Social Security, do you go in knowing what you’re going to argue, or do you simply research and see where it leads you?

Well, I go in with a general thesis of what the hell is going on here. Let me rephrase that. I start with a thesis of what is actually going on here and I set out to study it. And here’s how I approach basically everything I’ve done in my career. I start with, ‘where did this come from?’ At Syracuse, I teach one course on the history of property and tax and the other on business regulation. We start with Hammurabi’s code. When I was covering the LAPD for the Los Angeles Times, the first thing I did was read up on where did this idea of police come from. What are its ancient roots and how did it develop? I start with the genesis of things, because most journalists mechanically and accurately report what sources tell them. I operate on my own authority. It’s called enterprise reporting or investigative reporting, and I start with the underlying principle and theory. Because once you understand the principle and theory of things, the mechanics become very obvious to you. So I see things that other journalists don’t see.

The Politic: What advice would you give to young journalists?

That’s really what you need to do. Only study enough journalism to understand the basics of how to report and how to organize your writing. Focus your education on hard areas that will equip you with tools. Statistics, chemistry, physics, literature if you want, or history. But focus on how to deeply understand how things work. Study philosophy. Don’t waste your time in a whole bunch of stupid journalism courses. And I’ve taught journalism. Take 101 and 102 and maybe a class on how to structure writing. That’s what holds back most journalists—how to structure. And because I’m self-taught, it took me years to learn. Students who go to just the graduate school at Columbia and take classes on just how to structure pieces do much better. I tend to write what I call modular fashion, because when I was very young I didn’t master that as well as I should’ve. But study useful things. Statistics, especially. Statistics and numbers are really crucial to understanding the world.

The Politic: Where do you think journalism is heading?

First of all— and this is not a simple question—investigative reporting is doing pretty well at the moment. You can go to the Bureau of Labor Statistics’ website and they have categories for editors and writers and you can see how many of those jobs have disappeared, but I believe roughly a third of journalists have gone away. And editors and writers won’t capture TV and stuff like that. The problem in journalism is that what is disappearing is beat reporting—just the coverage by someone who covers the City Council, or the School Board, or maybe the arts, and knows the players and knows what’s going on. Those are valuable things to society. That’s one that’s disappearing. The second thing is that there are all sorts of reporters who feel they’re powerless. We have this business of checking quotes with government authority for approval. I would never do that. If somebody asked me to do that, I would quote them in my article as saying that so-and-so from the XYZ department demanded that any quotes be presented to him for approval and the request was rejected. Well, if they don’t get their oar in because I won’t bend to their rules, then they don’t get their side of the story told. You’re not obligated to tell their story; you’re obligated to give them the opportunity to tell their side of the story. Eventually, we will see the truth of Thomas Jefferson’s famous dictum that, given a choice of government without newspapers or newspapers without government, he’d choose newspapers. And he said that at a time where newspapers routinely just made it up. They didn’t try to tell the truth—they made it up. So it’s not journalism I’m worried about; it’s our democracy. I often end speeches these days with the following observation. It’s that if we don’t address the problems that I’ve been identifying in our society—why we need taxes, why we need to use those taxes to build a better society, why we need to have transparency, at which Obama is far worse than Bush, who was far worse than Clinton, and I can keep going back. It’s that if we don’t address these problems, somewhere down the road, it may be decades from now or it may be a century from now, textbook writers will start a sentence with, “The United States of America was…”

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1 Comment

  1. Great interview. Because there are no comments it is hard to tell how many people read this. I follow Johnston on twitter so I read every thing he posts. I have read the first book of his trilogy and will eventually read the other two.

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