Loans are Income? Writer Thinks So

Influential former New York Times tax reporter David Cay Johnston is back at it again, trying to stir up outrage at the thought of Los Angeles Dodger owner Frank McCourt apparently paying little or no federal or state tax over the past few years.

"The breakup of Frank and Jamie McCourt's marriage is making headlines because the couple, who own the Los Angeles Dodgers, lived an exceptionally lavish lifestyle. But what their divorce proceedings also reveal is how the official reports on incomes and tax burdens disguise reality (subscription required to read full article).

In six years the McCourts spent $ 108.9 million without incurring any federal or California income taxes, her lawyers said in court papers. The only levies that may have been paid were payroll taxes on Mrs. McCourt's salary as the nominal head of the Dodgers, and even that is not clear from the court filings.

"The parties have not paid any federal or California income taxes since they moved to California in 2004," her lawyers wrote in a filing seeking nearly a million dollars a month of maintenance pending the completion of the divorce."

Sounds egregious enough. Who doesn't think people should pay the tax that they owe?

But wait, what's this? The McCourt's actually didn't have any income during those years that the government could tax?

"We simply do not know how many people show a tiny AGI but in reality live lavish lives because they have income that escapes taxation or because, like the McCourts, they borrow against their assets."

It's difficult to grasp the full effect of Johnston's point. Is he saying that people who borrow should somehow be taxed on those borrowings? It seems that way. That would be news to the millions of homeowners who borrowed to purchase their houses.

Alternatively, is he perhaps a proponent of a national wealth or asset tax? Unfortunately the 16th Amendment doesn't appear to currently allow that, and in any event is in no sense the current law of the land with which to indict Frank McCourt.

Johnston attempts the common tactic of diverting attention from the real issue, exploding federal and state spending, and tries to focus the reader's attention on a phantom issue, which is the fact that some people legally and lawfully organize their own affairs to pay as little tax as possible.