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Not taxed enough - a challenge to my friends!

April 15 is coming up, which is the deadline for income tax forms here in the U.S. Shelly's already finished ours and sent them in (thanks to J.K. Lasser's online service!) so we should be getting big refunds any day now... and that made me wonder a bit. With all our exemptions and deductions, our federal income tax rate ends up being roughly 3% of total income. Social security and medicare taxes are more than double that - about 6.5%, and I believe my employer pays another 6.5% on top of that so quadruple federal income tax if you count both. We also paid around 5% (not quite double the federal tax) in NY State income taxes, and over 5% in local property taxes. Not to mention that state and local government gets 8.625% of every dollar we spend on taxable items here, plus whatever other taxes and fees apply.

Why are we still not regulating credit default swaps?

In the news this weekend, among many other (some related) topics, has been AIG's revelation that much of the "bailout" money they received from the US government has gone to a small collection of banks, foreign and domestic. I am no expert on the various derivative contracts at issue - nor apparently are most of the financial press. However two rather interesting, perhaps disturbing, issues occur to me from reading the actual statements involved:

  • These don't appear to be actually payments to the banks in question, but rather "collateral postings" by AIG, at the request of the banks.
  • These contracts were purchased after the date of the initial government rescue in September 2008!
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