Where all the tax deductions go

There was a letter to the editor in today's USA Today noticing that all of the tax deductions and tax shelters go to the rich and not to the poor. The writer thought it would be much fairer if everyone received the same deductions.

This line of reasoning dovetails somewhat with President Obama's comments at his Tuesday press conference about why its fair to cap the amount of deduction that "rich" people receive at the same level that "middle class" people receive.

There is a bit of reality missing from both of these viewpoints.

Under the graduated income tax system we currently toil under, the more money you make the larger the marginal (the tax percentage on the last dollar earned) tax rate is.

For single tax payers, after deductions, the marginal tax rates look like this ...

• 10% on income between $0 and $8,025
• 15% on the income between $8,025 and $32,550; plus $802.50
• 25% on the income between $32,550 and $78,850; plus $4,481.25
• 28% on the income between $78,850 and $164,550; plus $16,056.25
• 33% on the income between $164,550 and $357,700; plus $40,052.25
• 35% on the income over $357,700; plus $103,791.75

For the USA Today letter writer and other like minded people (who probably do not know any better), you might notice that the poor actually pay significantly less in taxes -- both in real and in percentage terms -- then the more well off. In fact, roughly 46% of the population pay no income taxes at all. How much more of a tax deduction / tax benefit do you need once you are at zero dollars in the first place?

For Barack Obama (who certainly does know better), if I am at the low end of the 28% tax bracket and write a check for $500 to charity I get to take a deduction just like the person in the 35% tax bracket but I will be paying about $16,000 in taxes. If I'm in the low end o f the 35% tax bracket I'll be paying $103,000 in taxes. I'm sure everyone would love to be making $358,000 per year but writing that check for $103,000 is a whole lot less fun. And then to have the President stand there and tell you you're not paying enough when about 1/3rd of your income is going straight to the US government in income taxes is fairly disgusting.

Follow-up to AIG Bonuses

Here is a link from SondraK on why AIG executives deserve the bonuses they were offered.

Mr. Grassley it appears you and your ilk owe an apology. Or perhaps its time you resigned your position in Congress.

Random Thoughts

"I'm sick and tired of all the weak explanations about the rise and fall of gas prices. The bottom line is still greed" -- Dayton Daily News. Personally I'm happy that gas now sits below $2 a gallon, but I did miss the right of entitlement to gasoline. The oil companies have the right to charge what ever they want; consumers are free to buy or not; the overall market will set what the actual price is. Who is being "greedy" ... the company that looks to earn a profit by finding, recovering, refining, and distributing the gasoline; or the consumer that expects all of this to happen but pay only what they consider to be "reasonable"?

"We want our money back and we want our money back now for the taxpayers." - Nancy Pelosi.
One has to wonder ... just who's money is Nancy talking about -- who is the "our" and the "we"? Since only about 54% of Americans pay income taxes, this leaves out a little less the half of the populace. Of the 54% remaining, at least of 1/2 think Nancy Pelosi is a complete idiot. Why is it that Nancy has no problem spending MY money on things that I neither support nor benefit from?

One thing that I have not heard is exactly what the bonuses were for. Were they retention bonuses to keep qualified people? Were they acheivement bonuses for a job well done? What were the metrics for accomplishing them? If the employee held up his end of the bargain and excelled or if the company can be more profitable / competitive by keeping the high performers, isn't it in everyones interest to keep them around? Since my money is being used to support these companies, I want the best and brightest working hard so I can get my money back.


One of the concepts that has been raised in the wake of the bonus offerings is that we should not be compensating the people who caused the problem in the first place. Chuck Grassley suggested the folks at AIG "should either resign or go commit suicide". Is it me or did anyone notice that the Senators and Representatives who allowed this problem to occur in the first place are still in office? Perhaps they should lead by way of example .... Chuck Grassley has been in office since 1980, Barney Frank since 1981, and Nancy Pelosi since 1987. If anyone should know failure when they see it, it should be these three.

Do we really want the federal government dictating how much people can earn? So much for capitalism and a market economy. Personally, the whole "From each according to his ability; to each according to his need" doesn't really work for me.