issue 220 - June 1991
Taxed to death
The Great Revenue Robbery
Richard Swift plays private detective to investigate
a murder - and discovers a multi-billion-dollar theft.
It wasn't pretty. Rakowski was splattered all over the sidewalk of the prestigious Boulevard Raspail right in front of the Edouard Cinq Hotel. The old Pole had even gone through the purple front-door canopy on the way down from his tenth-storey balcony. The commissionaire was more than a little flustered and the hotel management drones Were swarming around like someone had knocked over their hive.
I knew it had been too good to be true. This suit from the International Tax Foundation walked into my dusty Lower East Side office. He kept playing with the knot of his tie and looked like he scarcely believed it when he told me 'you come highly recommended'. I couldn't believe it either. 'You want what?.., security for a prestigious conference on "Taxes in the Twenty-First Century"? Where?... Paris?'
It was late June in New York - the time of year when you can almost see the heat coming off the acres of cement that stop Manhattan from floating out into the Atlantic. Five months of candid camera to stack the odds in divorce cases and searching for runaways in the crack dens of Avenues A and B and I was more than ready for a break. My wallet could use a break as well, what with child-support payments and Mr Mermelstein getting nervous about the office rent. Besides, who cared about taxes except us poor suckers who had to pay them? It would be a cakewalk - munching croissants and knocking back the Calva for two glorious weeks, all expenses paid.
Now here was the main man from the conference - the learned Professor Stanislaus Rakowski - taking a half-gainer from the tenth floor. The man who had the ear of the top people in govemments all over the world had given his last piece of sage tax advice. It plainly wasn't an accident either - signs of a struggle and the lock on his suite broken. It sure wasn't going to look good on my CV.
The whole thing was a real poser. The Edouard Cinq prided itself on its own tight security so it was not likely that someone from the outside could have cracked the conference. Also Rakowski was the model family man with a scrupu bus reputation for honesty and no personal enemies. It had to be one of the other conference participants that sent the old guy to the bone orchard. It was going to be hard to choose. The conference delegates were a cross-section of the kind of sharpies that haunt the murky world of Big Time tax; slippery accountants, sleazy tax lawyers, self-righteous ideologues, pompous bureaucrats, oily corporate lobbyists and people who referred to themselves simply as 'tax planners'. Just to make matters more difficult, a shit-disturbing crowd of advocates for what the conference program called 'disenfranchized groups' - activists riding the radical hobbyhorse of tax justice - had been invited along to give their opinions.
As Conference Chair, Rakowski had had to ride herd on this motley crew and from what I'd seen it hadn't been too easy. The old Pole wasn't by inclination the neutral type - he was not one to suffer fools gladly. It was hard to believe that someone could get so worked up about taxes that they would commit murder. But there was blood all over the sidewalk.
First I had to figure out a motive and find out who Rakowski had crossed swords with at the Conference. To do this I was going to have to learn more about taxes than I ever wanted to know. It took me about a week to get my head around the basics. What I discovered boggled the mind. I had always thought of government tax departments as staid, predictable places whose God-like judgements you might not like but at least put everyone in the same boat. But a little probing soon straightened me out. Tax legislation was actually a vast playground for special interests pleading for this or that exemption or loophole to get those with pull off the tax hook. Removing a simple subordinate clause could land them millions in windfall profits.
A tax system was in reality more like a cross between a lottery, an auction and a fixed horse race. You won the lottery at birth - light inheritance taxes making sure vast fortunes fell into the laps of the next generation. The bidders at the auction were different national treasuries - the US, Mexico, Panama, Japan - each trying to loosen up their tax rules in order to attract the pounds, dollars or yen that roamed the world looking for a tax-free home. And you could fix the horse race if you had the political and economic clout to get exemptions, deferments and other loopholes which lightened the tax load on your wealth and profit.
The Sorbonne's library allowed me to poke around in the dregs of tax history. Up until the last couple of hundred years tax collection had been a military operation and the right to tax, part of the booty of war. Since the days of imperial Rome taxation has been a prerogative of empire. Europeans used tax to drag reluctant Asians and Africans into the cash economy. As someone who had avoided working for a boss all my adult life I knew how they must have felt. I came across a sharp quote from a Zimbabwean trade unionist called JH Mphemba who had it all figured out way back in 1929: 'First the white man brought the Bible, then he brought guns, then chains, then he built a jail, then he made the native pay tax'. Colonial history is scarred with revolts against unjust taxes referred to rather quaintly as 'tax troubles'.
Next on my reading list were the airy heights of tax theory - you wouldn't catch Phil Marlowe getting to grips with this stuff but my ass was on the line here. Still, the basic message came through loud and clear: 'Taxes are distinctly disagreeable burdens, and so there is a constant striving to place them on the backs of others.' Even the classical capitalist Adam Smith thought the tax system should try and overcome some of the inequalities of wealth and income: 'It must always be remembered,' he said, 'that it is the luxurious and not the necessary expense of the inferior ranks of people that ought ever to be taxed.'
'Progressive taxation', they call that - but it's not an idea that goes down too well with the yachts-and-champagne crowd. And Rakowski seems like he was on their side when he wrote The Golden Egg, his defence of light taxes on productive wealth. But at least in the rich part of the world some kind of uneasy balance seems to have co-existed since World War Two. Better-off folks and big companies paid relatively more in taxes so that governments could provide basic services such as old-age pensions and health care. There was faith that government spending could keep the streets clean and make life more pleasant for everyone. But hold the applause.
By the mid-1970s economic growth had stalled and that put the squeeze on tax revenue. It was big decision time: governments had to cut services - health care, environmental protection, the social safety net, cultural life - or else raise taxes.
I didn't need any tax experts to tell me what had happened next. I'd lived it. They made the cuts. Faith in the quality of service and the welfare state itself was shaken. Across the industrial world right-wing governments were swept to power with their battlecries against wasteful spending and their simple-minded let-the-market-do-it prophecies. I'd seen the results of a decade of this nonsense - in the line-ups outside the foodbanks and the homeless slouched on the benches of Central Park.
There was still money around, of course, even if not much of it ever came my way. The 1980s were the decade of the yuppie, of quick fortunes on the futures market and overnight killings in real estate. This wasn't a time to worry about looking after poor folks and making sure the potholes were fixed. Now you won't find my name on any bleeding-heart petitions. But it really stuck in my craw that some people could afford $50-a-day parking in downtown Manhattan or flights on the Concorde but there wasn't enough money to clean up acid rain or keep the local health clinic open.
What I'd never thought much about is how this stuff was connected up with taxes. But from his papers and old articles it was sure as hell keeping Rakowski up nights. His early sympathy for the rich was beginning to tarnish. And no wonder. Already theoretically high taxes on the big-money crowd had been whittled away by an endless series of deferments, evasions and tax loopholes. Rich just meant hard to tax - and armies of high-priced accountants and tax lawyers made a handsome living working out ingenious ways to beat the system.
Then a light bulb went or in some obscure right-wing economics think-tank. Let's give the people what they want - tax reform! The loopholes would be closed and tax rates could be cut for everyone. Rakowski initially gave the idea his luke-warm but influential blessing. But through a crafty sleight-of-hand only some loop-holes were closed. The old Pole's articles got increasingly grumpy as the 'me first' decade wore on and the top tax rates of the glitterati plummeted - in the UK from 83 per cent to 40 per cent, in Aotearoa/New Zealand from 66 to 32, in Canada from 58 to 29 and so on.
Rakowski was at pains to point out that this was only the tip of the iceberg - the take from capital gains, inheritance and company taxes all went down while indirect sales taxes shot up - and took a much higher percentage of the stretched budgets of the poor and middle class. But the boldest stroke of all came from the nastiest right-wingers of the lot - the British Thatcherites. They really went over the top and brought back an idea from the Middle Ages - a 'poll tax' based on the perverse principle that the high-rise slums of the poor use up the same amount of services as the stately mansions of the rich.
All this was more than even a fiscal conservative like Rakowski could stomach. While he seemed to have had no problem with heavy taxes on moderate incomes he felt that the whole tax system was put in jeopardy if you let the rich off so lightly. He believed not only in balancing budgets but in providing a decent level of public order and service in return for the taxes paid. Many of the New Right governments were doing neither. Rakowski came to recognize the tax reform for what it was. A coup d'état had been carried out by the hucksters and hustlers. The six-figure income gang was getting away with a massive public purse snatching.
In a series of articles in various learned economics journals the old man set about demolishing the intellectual underpinnings of conservative tax reform. It didn't exactly make for gripping bedtime reading but I dutifully plowed through them. His main assault was on something he called the 'intravenous theory of capital'. According to this view all that was wrong - high bus fares, not enough apartments or the elderly eating dogfood sandwiches - could be fixed by a transfusion of productive capital into the economy from wealthy investors. But to make them confident enough to do it you had to slash both their taxes and spending on social welfare. Clever really: in order to feed children you had to slice child welfare payments!
Rakowski cut through the crap. He simply looked at what the rich actually did with their post-tax windfall. He exposed the multi-billion-dollar corporate merger movement in which vast sums were used by corporations gobbling each other up; instead of creating jobs this usually resulted in lay-offs. Other money was usefully put to work in real-estate speculation driving up housing costs and creating more homeless people. Then of course there was the boom in conspicuous consumption that accompanies any gilded age. Record sales at Sothebys and Christies auction houses included four million dollars for Andy Warhol's painting of Marilyn Monroe. The world's most expensive automobile, a 1931 Bugatti Royale, fetched $9.8 million in 1987. Collectors would even have paid hundreds for my old baseball cards, if only my mother hadn't thrown them out.
Conspicuous consumption carried over to services as well. The lack of proper public service was no problem if you had the dough. Who worries about spiralling crime rates if you can afford private security guards and your own razor wire? When the quality of the regular schools gets too much to bear you can always park your kids in a private snob hatchery. And who ever goes down in those dirty old subways anyway? Why pay taxes to support mediocre services for everybody when you can buy exclusive high-quality services just for you? This of course is something that the elites in the Third World had figured out years ago.
Rakowski was gravely concerned that private wealth and public squalor would upset the whole capitalist applecart. He was particularly disturbed by the threat of Third World financial collapse. He was a big believer in people paying their debts but he just didn't see how the Third World could do it. If wealth was lightly taxed in the industrial countries, it often got off scot free in the Third World where the rich just tucked their money away in US treasury bills or French real estate as soon as it was threatened.
The old Pole had started floating the idea of a comprehensive international tax treaty to make sure that at least some of this wealth ended up in Third World treasuries.
This was the bleak background to the 'Tax in the Twenty-first Century' conference. On the one side were those trying to hide or at least disguise the extent of the revenue rip-off by the super-rich. .On the other side were those who wanted to yell foul as loudly as possible.
It was no win for Rakowski. For the outsiders he represented the tax establishment writ large. The insiders saw his influence as a threat to their comfortable set-up. But you've got to hand it to the guy - he kept right on punching, saying that most economic projections for the next century showed fewer jobs and less taxable income from labour. The fiscal crisis would only get worse unless the wealthy were made to pay their share.
No doubt about it, the old man was frustrated and cranky. He'd stepped on a lot of toes at the conference. But obviously he'd pushed someone too far. Either an outsider or an insider might have popped the old guy. I chewed over the two possible motives of revenge or cover-up and I drew up my list of key suspects. Frankly I wished I was back at Benny's on Second Avenue munching a salami-on-rye. This case was taxing my brain.
CHESTER STONE. We're talking smooth. Leading Washington lobbyist. Director of the Committee for Capital Formation. Stone's sophisticated approach to building coalitions and manipulating the eager-to-please business press has made him a corporate legend in the fight to get companies off the tax hook. If it's cuts in capital gains or accelerated-depreciation allowances you want - Ches Stone's the man to call. Muted conversations with vote-conscious politicians over lunch in some of Washington's most expensive eateries are his stock in trade. And he always picks up the cheque. No crude right-wing ideology here. Tax cuts for business are just common sense for everyone-the pie gets bigger, more lobs, and eventually more money into the public purse. Sure and we all ride along to never-never land! But Rakowski's campaign against business tax breaks was becoming more and more of a threat to Stone's power - could it finally have gotten to him? An Ivy League guy resorting to crude physical violence? It wouldn't be the first time - and these stakes were high.
The introduction of the poll tax in the UK proved a key factor in the toppling of Margaret Thatcher and the reactionary principles she stood for. People in the lowest paid jobs suddenly found themselves paying as much in local tax as the wealthiest families in Britain. It was the boldest stroke in an international trend to shift the burden of taxation from the haves to the have-nots. Popular rage gripped the country. Resistance ran from riots to rallies as a vast protest movement sprang into action. Thatcher plunged to all-time lows in the polls destroying her cherished ambition of a record fourth term in power. The anti-poll tax movement may be the first blow in a worldwide battle to make wealth and profit carry their fair share of the tax burden.
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