Free Lunch

Between 1979 and 2007, the share of total national income going to the top 1% of American earners more than doubled, climbing from around 9% to over 23%. During that same period, the effective federal income tax rate for that same top 1% fell by nearly a third. This was the result of thousands of small, often obscure, changes to tax codes, regulations, and enforcement policies. These adjustments, frequently justified as promoting growth or creating jobs, systematically redirected the flow of wealth upward. The cumulative effect created a system where the rules themselves seem to favor the largest players, allowing them to legally minimize their contributions while maximizing their gains from a publicly-funded infrastructure.

This dramatic, decades-long shift in the economic landscape is what drove Pulitzer Prize-winning journalist David Cay Johnston to investigate. After years of reporting on tax policy for outlets like The New York Times, Johnston noticed a consistent pattern: the public narrative about the economy rarely matched the fine print he was reading in corporate filings and legislative documents. He saw how specific, complex rules—often buried deep within thousand-page bills—were creating enormous, risk-free profits for a select few. "Free Lunch" is the culmination of that investigative work, written to translate the dense language of tax law and corporate finance into a clear, compelling story about how the game is actually played.

Module 1: The Illusion of the Free Market

Imagine a successful golf resort. A beautiful, private enterprise built on rugged coastline. It seems like a perfect example of entrepreneurial spirit. But what if its success depends on a hidden subsidy? A subsidy larger than its entire annual payroll. This is the story of Bandon Dunes in Oregon. And it reveals a fundamental truth of the modern economy.

The first insight Johnston offers is that the "free market" is often a carefully constructed illusion. Adam Smith, the father of modern economics, warned about this. He saw how government "bounties," or subsidies, could distort economies. Fishermen in his time started chasing the subsidy, not the fish. Johnston argues this problem is now systemic. The Bandon Dunes resort, while privately funded by entrepreneur Mike Keiser, benefits from massive, automatic government support. One key subsidy flows from a federal tax rule for corporate jets. Executives flying to the resort for "business" get a huge tax break. This break is so large that taxpayers and shareholders are essentially footing most of the bill for their golf trips. This is a tilted playing field.

This leads to a second, critical point. Subsidies are wealth transfers from the public to the private elite. Take the Bandon Dunes example further. The resort created jobs in a struggling community. That seems like a win. But Johnston argues it's a net loss for the national economy. The jobs cost more than they are worth because they are propped up by these hidden subsidies. Taxpayers across the country, people who will never set foot on the resort's pristine greens, are paying for the enjoyment of its wealthy clientele. This pattern repeats everywhere. Johnston shows how Wal-Mart, Cabela's, and other retail giants demand huge tax breaks and grants to open new stores. These subsidies are presented as "jackpot investments" that create jobs. But the reality is different. They give large corporations an overwhelming advantage. An advantage that often drives small, unsubsidized local businesses into the ground.

And here's the thing. These subsidies are often invisible by design. They aren't always direct cash payments. They are buried in complex tax codes. They are hidden in regulatory loopholes. Or they take the form of government-granted monopolies. For instance, the major sports leagues—the NFL, MLB, NBA, and NHL—are exempt from antitrust laws. This allows them to restrict the number of teams, drive up ticket prices, and demand massive public subsidies for new stadiums. They can threaten to move a team, effectively blackmailing cities into paying. The result is a transfer of wealth from taxpayers to billionaire team owners. The subsidy is a complex bond financing deal. Or a land giveaway justified by exaggerated economic projections.

So what happens next? This system doesn't just transfer wealth. It actively undermines the very foundations of our communities. Let's explore that in our next module.