Math in Tax

I just had my taxes done. As I reviewed my tax returns, I noticed the following description on how to figure the limit on itemized deductions (http://www.irs.gov/publications/p17/ch29.html):

If your itemized deductions are subject to the limit, the total of all your itemized deductions is reduced by the smaller of the following reduced by two-thirds:

• 80% of your itemized deductions that are affected by the limit. See Which Itemized Deductions Are Limited , earlier, or

• 3% of the amount by which your AGI exceeds $166,800 ($83,400 if married filing separately).

That is a mouthful, and the rule seems contrived! Who stipulated it? The numbers seem to come out of the blue without rationale. To a scientist, it borders on the absurd. It is analogous to defining the speed of light by saying that light travels at the speed such that in a minute it covers the distance of one billion times the height of the White House on the north side. Anybody care to point me to the origin of this rule?

To assist the Americans to figure their itemized deductions, the IRS publication includes a worksheet that breaks down the calculations step-by-step. Here are lines 9 to 12:

9.	Enter the smaller of line 4 or line 8					9.	2,784
10.	Divide line 9 by 1.5					10.	1,856
11.	Subtract line 10 from line 9					11.	928
12.	Total itemized deductions. Subtract line 11 from line 1. Enter the result here and on Schedule A, line 29					12.	141,212

Do you see that line 10 is completely superfluous? Line 11 really is simply line 9 divided by 3, and line 10 does not seem to be used anywhere else in the tax return. Is it simply an opaque layer to conceal the absurdity and arbitrariness in the tax code?

Here is how to figure the limit on itemized deductions, in layman's language, but for the arithmetically more adept:

If your itemized deductions are subject to the limit, the total of all your itemized deductions is reduced by the smaller of the following:

1. 4/15 of your itemized deductions that are affected by the limit. See Which Itemized Deductions Are Limited , earlier, or
   
2. 1% of the amount by which your adjusted gross income (AGI) exceeds $166,800 ($83,400 if married filing separately).

More concisely, if the total of your itemized deductions is smaller than 3/80, or 3.75%, of the amount by which your AGI exceeds $166800, your eligible deduction will be limited to (1 - 4/15 ) = 11/15 ~ 73.3% of your total deductions; otherwise (if you manage to list a lot of itemized deductions compared to your AGI), your eligible deductions will be the total deduction reduced by 1/100 (AGI - $166800), and since that reduction is a fixed amount, there lies your opportunity of tax evasion.