Friday, October 1, 2010

"The Best Intentions"

Frank and Jamie McCourt, who made their fortune in real estate, are currently embroiled in a bitter, public divorce, which is being played out for fun in the local media and for keeps in a Los Angeles courtroom. Now normally this would not matter to me, as I have no more interest in the McCourts’ marital situation than the McCourts have in mine. Which seems to be proceeding relatively smoothly, should the McCourts happen to ask you about it.

What makes this legal wrangle noteworthy is the couple’s recent purchase of the Los Angeles Dodgers, which is owned either jointly, or, according on Frank’s attorney, exclusively by Frank. The matter remains in dispute.

It is not, however, the McCourts’ ownership of a ball club I happen to root for that made their story worthy of my time and attention, and, now, secondarily, yours. The clincher, the thing that really caught my eye, and my interest, and my head, the top of which blew off but I subsequently retrieved it and stuck back on, was this factoid, embedded in the report of the divorce proceedings, the factoid being this:

The McCourts, who hit it big enough in real estate to be able to purchase a major league baseball team, the tab for such a “name” franchise running in the hundreds of millions of dollars, which I’m sure they didn’t pay all in cash, but still. This super-wealthy couple…

Does not pay any income taxes.

Whoops! There goes the top of my head again! Give me a minute. I think it went under my desk.


Okay. I’m back. Where was I? Oh, yeah.

Immensely wealthy couple. No taxes at all.

Now, at this point, this post could go in a number of different directions. I could decry the freaking unfairness of phenomenally wealthy people paying no income taxes, while less monetarily blessed taxpayers, such as, to pick and example out of the air, myself, pay prodigiously through the nose.

I could ponder the question of why financially struggling conservatives in this country adamantly endorse the idea of the super-rich carrying a relatively unburdensome tax load, even though it means that these financially strapped Americans have to make up the revenue deficit themselves.

Or I could, at least in my fantasy, buy a big gun and blow these despicable tax evaders away.

The latter would be a mistake I would dearly regret. Because murder is against the law and there would be serious consequences. And because my motive would be faulty because

These people are not tax evaders.

This is an assumption on my part. But an assumption proceeding from the following evidence. The McCourts are not in any way hiding the fact that they don’t pay any income taxes. It’s right there in the paper. If their paying-no-tax behavior were against the law, they’d be contesting their divorce from prison cells. And they’re not. They’re walking around the street, according to the depositions, lavishing hundreds of thousands of dollars a month on their “personal expenses”, presumably exchanging “High Fives” with their mega-rich compadres going,

“You don’t pay any income taxes? Me neither!”

From the way the tax enforcement agencies are handling this, by which I mean doing nothing about it, I have to conclude that the tax code, that is the current law of the land, has been written in such a way that the McCourts, who have enough disposable moolah to buy themselves a high profile baseball operation, can get off without paying any income taxes…


It’s entirely okay. They are simply following the tax code.

Why is the tax code written that way? At this point, I will, unfortunately, have to let you down. I don’t know. My suspicion, however, is, that at the bottom of what seems like an obscenely outrageous arrangement – giving legitimate tax breaks to people who appear to need them the least – are good, and even reasonable, intentions.

Speculation: The real estate market is important to the economy. Duh! Its failure brought the entire economy to its knees! It would seem then to be in the best interests of the country to create an environment that would nurture and support the real estate market. A resulting policy being reasonable tax breaks.

Unfortunately, this leads to – accomplished generally behind closed doors – a gradual, seemingly inevitable, re-positioning of the line. From reasonable tax breaks. To questionable tax breaks. To unreasonable tax breaks. To, ultimately, the Titans of Real Estates’ paying no income taxes whatsoever.

We can’t get mad at these people. They, or more specifically their tax accountants, are simply responding to the way things are.

Legal tax breaks.

No taxes at all.

And it all started, I’m sure, with respectable intentions.

Am I indicting the “slippery slope” here? No. When you’re balancing interests, accommodations need to be made. I’m just saying we need to keep a careful watch on that line. And our eyes open for owlhoots.

In my next post, I will try this again, in an arena I am only marginally less ignorant about. I am hoping my intentions will shine through my incomplete understanding.

Or that a smarter person out there will help me out.


emily said...

I need a better accountant.

Anonymous said...

The $108 million "income" cited by Jamie in divorce papers was debt, not income. You don't pay taxes on loan proceeds. They didn't "make" the money, they borrowed it. But I guess Earl thinks they should pay income taxes on it anyway just on general principles.

Anonymous said...

Correction: The $108 mil was tax losses, not income, (though Jamie portrayed it as such). But the point remains. McCourt is borrowing against assets and future Dodger income streams to generate current cash. And as loan proceeds, those sums aren't taxable as income.