Working as intended.
You get only 40% dmg when your total armor -Fatugue is 15 or less. Anything beyond that reduce damage reduction.
Also you get 40% dmg which mean your damage reduction is 60%.
With armor that you get 42% dmg your damage reduction is 58% so its lesser.
Well I rarely use Bags and Belts perk but having bags as items alternative is nice – you still sacrifice accessory slot although current accessories could use some boost.
I did purge in your mod and leave only bags. It works and so its fine.