Book: Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else Author: David Cay Johnston In one line: Over decades the tax code was rewritten, mostly legally, so the very wealthy and big corporations pay proportionally less while ordinary wage-earners quietly pick up the difference.
1 · It's legal by design
The scandal isn’t cheating - it’s the rules themselves. Those who can afford lawyers, accountants and lobbyists help write and exploit the code, so most of the tilt is perfectly legal. That is exactly what makes it durable: there is no crime to prosecute, only a system working as its designers intended.
2 · Complexity hides who pays
An opaque code is a feature, not a bug. Complication conceals who really carries the load and who slips out, so unfairness is hard to see and harder to fix. When almost no one can follow the machinery, the people who built it are free to keep tuning it in their own favour.
3 · The burden shifts down
As the top escapes through deferral, shelters and reclassified income, the weight settles on the middle class - often through provisions, like the Alternative Minimum Tax, that were never designed to reach them. What looks like a rising tax on the rich lands, in practice, on salaried professionals.
A tax system in a democracy runs on voluntary compliance - most people pay because they believe the deal is roughly fair and that everyone else is paying too. Johnston, an investigative reporter who spent years covering tax for the New York Times, argues that over the closing decades of the twentieth century a quiet, well-funded campaign reshaped the code so the largest incomes and corporations pay proportionally less, while wage-earners - whose pay is reported and withheld before they ever see it - have almost no room to restructure what they owe.
Crucially, this is not a story about tax evasion. Most of it is legal by construction, because the beneficiaries and their advisers helped draft, lobby for, and interpret the rules. The book’s method is reportorial rather than theoretical: individual returns, specific shelters, named beneficiaries, and the machinery of enforcement, assembled into a pattern.
The deeper cost is not any single loophole but the slow corrosion of trust. Once ordinary filers sense that only “the little people” pay full freight, the moral basis of voluntary compliance frays - and a system that cannot be policed by audit alone starts to depend on a fairness it no longer delivers.
The “rigging” is not one act but a set of repeatable moves. These are the mechanisms Johnston returns to again and again.
Defer, and let time do the work. Tax delayed is tax discounted - and for the wealthy it can be delayed for years or across a lifetime. Structures that push income into the future, or roll gains forward untaxed, quietly cut the effective rate far below the headline bracket.
Convert income into a lower-taxed form. Wages are taxed hardest; capital gains, carried interest, deferred compensation and clever entity structures are taxed less. The core trick is relabelling the same economic gain into a category the code treats gently.
Shelter and offshore. Engineered tax shelters manufacture paper losses to cancel real income, while offshore accounts and entities move profits beyond easy reach. Both work because the code is complex enough to make the arrangement look like ordinary business.
Turn the middle class into the new “rich.” Provisions written to catch high earners - most notably the Alternative Minimum Tax - were not indexed to keep pace, so over time they reach ever further down into salaried professionals while the truly wealthy route around them.
Aim enforcement at the easy targets. A starved IRS finds simple wage returns cheap to audit and complex wealthy returns expensive to challenge. Scrutiny drifts toward modest filers, so the people least able to game the system face the most suspicion.
Rules written by the winners
Wealth buys lawyers, accountants and lobbyists who both exploit and shape the code. Effective burdens then drift downward onto earners who lack that access. Why it matters: it reframes “loopholes” as intended features, not accidents.
Deferral
Postponing tax quietly discounts it, so real rates on top incomes fall well below posted brackets. Why it matters: it explains how someone can be very rich and pay a modest effective rate without hiding a cent.
Tax shelters
Engineered arrangements manufacture losses to erase real income. Why it matters: they show how “legal” can still mean economically hollow - transactions that exist only to shrink a tax bill.
AMT creep
The Alternative Minimum Tax, meant for the rich, was left unindexed and crept into the middle class. Why it matters: it is the clearest case of a burden migrating away from its intended target.
Enforcement aimed low
An underfunded IRS audits simple returns harder than complex wealthy ones - so scrutiny falls on modest filers, such as those claiming the Earned Income Tax Credit. Why it matters: fairness fails at the point of enforcement, not just in the statute.
Corporate welfare
Targeted breaks and subsidies channel public money toward large firms and the well-connected. Why it matters: it inverts the usual story - the flow of help runs upward, not down.
Complexity as camouflage
An intricate code obscures who truly pays and who escapes. Why it matters: opacity is the shield that lets every other mechanism operate unexamined.
Fairness is the real asset
Voluntary compliance depends on perceived fairness. Why it matters: quietly rigging the system spends down the trust that keeps everyone else paying.
Johnston builds the case as investigative reporting rather than argument: he opens on the machinery of the modern code and the gap between headline rates and what the top actually pays, then works through the toolkit - deferral, shelters, offshoring, reclassified income - using named people and specific transactions. From there he turns to the institutions: a Congress responsive to donors and lobbyists, and an IRS too starved to challenge the complex returns where the real money sits. The later chapters widen out to corporate subsidies and the political economy that sustains all of it, closing on the civic stakes - what happens to a self-assessed tax system when ordinary filers stop believing it is fair.
Ask who wrote the rule. When a provision seems arcane, ask who benefits and who lobbied for it - complexity usually points to an interest being served.
Distinguish legal from fair. “It’s allowed” settles nothing. Judge a provision by how it distributes burden, not by whether anyone broke a law.
Watch the effective rate, not the headline. The posted bracket is theatre; what matters is the share actually paid after deferral, shelters and reclassified income.
Notice when income changes its name. Ask whether a break rewards genuine activity or just relabels ordinary income into a gentler category.
Follow the enforcement money. Note who gets audited. Scrutiny skewed toward small filers is a sign of political capture, not neutral administration.
Check whether the subsidy flows up or down. Trace who ultimately pockets a “targeted incentive” before accepting the story told about it.
Treat trust as the metric. Weigh any tax change by whether it strengthens or corrodes public belief that the system is fair.
Context This is a 2003, US-specific exposé, and its examples - particular shelters, individuals and enforcement budgets - belong to that moment. The mechanisms it names, though, have kept recurring in later debates: the tax treatment of carried interest, corporate profit-shifting offshore, swings in IRS funding and audit rates, and repeated fights over the AMT. Read it as a durable account of how a tax system gets tilted, then update the specifics against present-day policy rather than assuming the particulars still hold.
The most dangerous tax abuses are not the illegal ones - they are the ones made perfectly legal.
Complexity is not a flaw in the code; it is where the advantages hide.
When the people who benefit most also write the rules, fairness leaves quietly.
A rule aimed at the rich, left to drift, ends up landing on the merely comfortable.
It is easier to audit a wage-earner than to challenge a fortune - so that is where the scrutiny goes.
A system that depends on voluntary compliance cannot survive the belief that only the little people pay.