Federal tax deductions
August 14, 1992 - Letter to Lansing State Journal


Essays & Letters

There is an article in the 8-10-92 Newsweek called "Benefits 'R' Us" about the tax subsidies received by middle- and upper-income families. It points out that

  • the government spends more for the health care for the richest 10% of elderly Medicare recipients than it does on Head Start, job training and WIC combined;

  • with mortgage interest and other tax breaks for home owners, the government spends over four times as much on middle- and upper-income families as it does to house the poor; and

  • people with incomes over $100,000 on the average get more from government spending programs and tax subsidies than those with incomes less than $10,000.

 My wife and I are State employees. I did some calculations and I figure that our federal tax subsidy for 1991 was $7,203.23.

 Our adjusted gross income was $72,062.95, all but $493.08 of which was wages. We itemized our deductions as follows:

 $3,991.82   state and local income taxes
3,527.23   real estate taxes
145   personal property taxes (auto registration fees)
6,256.74   home mortgage interest
1,670   gifts to charity

 That reduced our taxable income to $56,472.16. Subtracting $4300 for two $2150 personal exemptions reduced it further to $52,172.16. The tax on that amount was $10,188.20 (15% on the first $34,000, 28% on the remainder).

Not included in our adjusted gross wage are certain employer-paid fringe benefits. According to the Civil Service Department, these are the amounts the State pays for me and my wife combined:

 $8,347   retirement
409   long term disability insurance
5,854   health insurance
758   dental insurance
335   life insurance
132   vision insurance

If I add the cost of the above employer-paid benefits to our $72,062.95 adjusted gross, it increases to $87,897.95. (The State also pays $4536 for our FICA and $1060 for Medicare, but since they are not optional, I won't add them. And the State actually pays $578 for our life insurance premiums, but part of that amount is taxable).

If the amounts we paid for mortgage interest, real estate taxes and personal property taxes were not deductible, our itemized deductions would come to less than $5700, the standard deduction for a married couple filing jointly. When I use the standard deduction and add the employer-paid benefits to our adjusted gross, our taxable income for 1991 is $77,987.95:

$72,062.95   adjusted gross (actual)
+15,835   employer-paid benefits
- 5,700   standard deduction
 - 4,300   personal exemptions
$77,897.95   taxable income

The tax on $77,897.95 is $17,391.43, so our federal tax subsidy was $7,203.23, the difference between the tax we paid ($10,188.20) and the tax we would have paid ($17,391.43) had all of our income been considered. In addition, adding the employer-paid fringe benefits to our incomes would have put us over the $82,650 limit on household income for the property tax credit (we claimed $605.46) and increased our state income tax by a total of $1334, and it would have increased our Lansing city income tax by $155. So by not taxing our employer-paid fringe benefits and allowing us to deduct property taxes and mortgage interest from our income, we get a total tax subsidy from the federal, state and city governments of $8692. And we don't have to stand in line at the welfare office.