Tax Deductible

The more I research retirement savings plans, college savings plans, and think about my investment portfolio, the more I come across the phrase "tax deductible" or "tax free". My 401K contributions come out of my untaxed gross salary. The interest gains of my IRA are not taxed. Up to $2500 of my contributions to my daughters college fund are tax deductible. In the US, up to $3000 of stock market losses are tax deductible. Think about what that means. You can lose up to $3000, and the government covers your losses, making your final total the equivalent of someone who did not play the market at all. It's almost like every American being given $3000 of poker chips to be played on the stock market every year. The term "tax deductible" is like "free money from the government...if you know how to use it". As is often the case, a casual comment by my wife has started me thinking and realizing that she's made a very insightful observation. The whole system is oriented to let the rich avoid paying taxes. Poor people don't have an extra $3000 they can play with on the stock market. Poor people don't have an extra $208/month to put towards each kid's college fund. And the poor certainly can't pay a tax specialist to find all the loopholes.

I understand that making certain expenses tax deductible is a way for the government to encourage investing in the stock market, giving to charity, and saving for retirement, all of which are undeniably good things for those that can afford to do so to be doing. But reducing tax, thereby reducing the government budget, seems like a bad way to go about encouraging those behaviors.

The whole US tax system is really pretty FUBAR. Although I freely admit that I don't know how to fix it, so I'll shut up.