Beating the system.

Perfectly Legal By David Johnston Penguin Group US$25.95

It has practically become a cliche: Latin America is poor because of endemic corruption, while the United States has prospered due to its transparent legal, government and corporate frameworks. After a string of accounting scandals that began with Enron, that naive, schoolbook argument came tumbling down. Yet poor corporate governance is not new in the United States. Perfectly Legal shows that corporate trickery has been going on for decades, well before Enron grabbed headlines. Tricks, fraud, complicity and corruption fuel the well-oiled machine of U.S. capitalism.

When journalist David Cay Johnston began covering the U.S. tax system for The New York Times in 1995, many believed he would produce dull stories on a predictably dry topic. But Johnston had a plan. Suspicious of the effectiveness of U.S. tax collection, be began a tireless investigation of how the U.S. system operates. To carry out his research Johnston traveled around the country for nine years, placing under the microscope large corporations, chief executive officers earning multi-million dollar salaries and politicians backed by special interest groups. Perfectly Legal is the result of that investigation.

The search for tax breaks is endless for corporate America. U.S. conglomerate Ingersoll-Rand set up a post office box in Bermuda and registered it as its corporate headquarters, Johnston writes. The move helped the company save US$40 million it would have otherwise paid the taxman. The late Roberto Goizueta, former chief executive officer of The Coca-Cola Company, amassed a personal fortune of more than $1 billion, of which he paid a fraction in taxes, Johnston finds. In 1991, Goizueta earned $5 million in salary, bonuses and other extras and controlled 1 million Coca-Cola shares, valued then at $85 million. Thanks to legal technicalities, however, Goizueta paid less than 2% of his income in federal taxes that year. Goizueta became a model for many high-level executives, according to Johnston.

To further prove his theory of tax inequality, Johnston provides the following data: While overall hourly annual wage growth in the United States averaged five cents between 1970 and 2000, hourly wages at the executive level grew by $600 during the same period. To display such growth data in a graph, one would need a 2.5-centimeter bar for workers and a 300-meter bar for executives.

Through high-level political connections, large corporations have been able to manipulate the Internal Revenue Service while the middle class is stuck with the bill. Today, an individual earning $60,000 a year pays proportionally more taxes than large corporations and also more than the wealthiest 2% of the population. Poor workers, those defined as employed but still unable to afford the basic cost of living, are seven times more likely to be audited by the IRS than any other person or corporation.

In Perfectly Legal Johnston shatters the myth of corporate transparency in the United States. He denounces how large corporations have used the U.S. federal tax system to their benefit. At the same time, Johnston criticizes how the bulk of the U.S. working-class population has come to subsidize the rich and famous while they themselves have has remained economically stagnant for three decades.