Gimme Shelter

By William R. Doerner

THE RAPE OF THE TAXPAYER by PHILIP M. STERN 483 pages. Random House. $10.

The rich are never more different from everyone else, as F. Scott Fitzgerald should have gone on to observe, than on the hateful ides of April. Most wage earners sweat over piles of canceled checks and interest statements just to worm their income total on Form 1040 backward by one bracket. But no self-respecting zillionaire would be caught within several lines of his real income before it has been vastly shaved by deductions, exemptions and exclusions.

According to a Brookings Institution study frequently cited in this book --an up-to-date and nontechnical work for the general reader--a family with an annual income of $200,000 to $500,000 in 1972 (IRS tax bracket: 50% to 70%) actually paid only 29.6% of it to the Treasury. That is about the same rate that a single person antes up on an income of $15,000.

Raid. How is that possible? Author Stern began explaining the not-so-fine art of legal tax loopholing nine years ago in The Great Treasury Raid. Along with dozens of further abuses of income tax equity, he now raises the seriousness of his charge from a mere crime against property to an assault on the person--namely, the millions of ordinary people who must pay higher-than-necessary tax rates in order to finance a vast system of "tax welfare" for the superrich.

Whatever the Rolling Stones had in mind, Gimme Shelter is the universal order of the rich to their tax lawyers. Nearly everyone is aware that some Texas oilmen regularly "drill away" their entire tax indebtedness by charging off the same amount as the cost of new drilling projects and at the same time keeping themselves comfortably afloat on the high tax savings allowed seekers of black gold. Less familiar is the fact that Christmas-tree growers successfully persuaded Congress to write a special provision into the tax law granting capital-gains benefits for their product after the IRS had ruled otherwise. Many tax experts believe that for each dollar in interest payments that state and local governments save on their tax-free bonds, the federal Treasury loses two dollars in income taxes; the winners are the superrich, who own more than 90% of such individually held bonds precisely because of the tax-escape feature. In the highflying late '60s, one study shows, no less than a third of all U.S. farm acquisitions were made by non-farmers, many of them wealthy city folk seeking a tax dodge.

Parts of this national roulette game fixed in favor of the upper brackets came to view as an election issue last year, when Senator George McGovern proposed sweeping reforms that would have forced the rich to pay taxes far closer to their supposedly assigned level than they actually do. McGovern's tax goals, rather fuzzily calculated from the start, got badly tangled up in his corollary proposal to redistribute many of the tax proceeds to those on the lower end of the income scale. It happens that Author Stern personally favors a similar plan. But he is careful to point out that money saved by loophole closing could be used to reduce the tax burden on middle-income folk, too.

In fact, if all the escape routes that Stern classifies as loopholes were truly cut off, the Government could continue spending at its present level and still cut overall personal tax rates by something like 40%. For example, under a table proposed by the Brookings Institution's tax expert, Joseph Pechman, a family of four with $15,000 annual income would pay $1,360 in federal income taxes, v. $ 1,666 at present.

If, on the other hand, the nation resolved to use the taxes from now-sheltered income to clean up its air or fight crime, the Government, says Stern, would have $77 billion in new funds, or about one-third of the 1973 federal budget.

No Loophole. That $77 billion is a highly controversial figure. The largest single chunk of it is $21.6 billion lost through income-splitting allowances like the advantage of a joint husband-and-wife return permitted to all couples. Stern believes that tax deductions for mortgage and installment-buying interest, to cite just one example that also could affect nearly everyone, should be ended right along with all those intangible drilling costs claimed by the rich. Thus it is clear that in Stern's version of the no-loophole world, by no means all of the howls of pain and rage would come from the fat cats. By far the most drastic change suggested in this book is the abolishment of capital-gains preferences. The proceeds from investments would then be taxed at exactly the same rate as income earned from jobs (though people who sold homes or stock that had accumulated value over many years would be allowed to average their gain over the time span).

Totting up the added billions to be gained from tax reforms, moreover, is only slightly less dangerous than setting out to find El Dorado. For example, it can be argued that if charitable deductions were disallowed, the federal bureaucracy would end up spending more in added social services for refugees from private agencies than it would get in new tax revenues. And if municipalities stopped issuing tax-free bonds, what sort of new subsidies would they need from Washington?

Furthermore, any wholesale tax revision runs the risk of creating economic dislocations. Wealthy families are a notable source of risk capital for new businesses that provide, if successful, new jobs and economic growth. Huge industries like house construction depend on the present tax structure and might be adversely affected for years if it is suddenly changed. In short, tax breaks--and especially the one for capital gains--provide a basic incentive for those who have money to do something more with it than collect interest on a savings account. Stern has clearly considered such arguments against "reform" to his own satisfaction, though not always to the reader's.

He is most trenchant, though, when he presents our present tax system as a national mess, maintained and constantly expanded by politicians who have to rely for their campaign financing on the very people who have the most to lose from any fair tax plan. It is all the more convincing because Stern, the heir to a Sears, Roebuck fortune who admits to using the shelters he wants to see abolished, would presumably be one of the victims of his own plan.

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