Washington, DC —Tax Freedom Day will arrive on April 12th this year, the 102nd day of 2011, according to the Tax Foundation’s annual calculation using the latest government data on income and taxes. Americans will work well over three months of the year – from January 1st to April 12th – before they have earned enough money to pay this year’s tax obligations at the federal, state and local levels.
In the new study Tax Foundation Special Report No. 190, “Tax Freedom Day Arrives on April 12,” Tax Foundation Staff Economist Kail Padgitt, Ph.D., traces the course of America’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, and calculates a Tax Freedom Day for each state.
“Tax Freedom Day 2011 is later than last year largely because of income changes rather than statutory tax law changes,” said Padgitt. “As the economic recovery continues, individuals’ rising income pushes them into higher tax brackets. Also, corporate tax revenue has also seen a resurgence.”
Although income increases are the main reason for the later Tax Freedom Day, several tax law changes are also partly to blame. The federal estate tax has returned after a one-year repeal, this time at a rate of 35 percent and with an exemption of $5 million. In addition, taxes associated with the Patient Protection and the Affordable Care Act con tinue to be phased in.
Taxes and the Federal Deficit: Add 41 Days to the Cost of Government
Tax Freedom Day, like almost all tax burden measures, does not take into account the current year’s federal budget deficit. Only taxes that will actually be collected dur ing 2011 count in the tally. In many years the deficit is fairly small as a percentage of total government spending, so Tax Freedom Day alone is a good guide to the size of government.
Since 2008, however, deficits have increased dramatically. As a result, Tax Freedom Day may give the impression that the burden of government is smaller than it is. If the federal government were planning to col lect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Tax Freedom Day would arrive on May 23 instead of April 12 — adding an additional 41 days to the nation’s work for government. This date for a deficit-inclusive measure is the latest since World War II.
Tax Freedom Day in Recent Years: A Rollercoaster Decade
Historically, the date for Tax Freedom Day has fluctuated significantly. In 2000, Tax Freedom Day was celebrated May 1, the latest date ever. A string of tax cuts between 2001 and 2003 pushed Tax Freedom Day up by two weeks, so that it fell on April 16 in 2003 – at the time the second earliest Tax Freedom Day since the Johnson administration.
From 2003 through 2006, corporate income taxes rose rapidly along with rapidly growing corporate profits. Personal income tax receipts also rose sharply, starting in 2004. As a result, Tax Freedom Day was delayed, reaching April 24 in 2006.
From 2007 to 2010, a weakening economy and stimulus tax cuts pushed Tax Freedom Day earlier. Meanwhile, government spending has continued to grow: this year the federal budget deficit is projected to be $1.48 trillion.
Comparing the Categories: Individual Income Taxes Take the Biggest Bite
Five major categories of taxes dominate the tax burden. Individual income taxes – including federal, state and local – require 36 days of work. Payroll taxes take another 22 days of work. Sales and excise taxes, mostly state and local, take 15 days to pay off. Corporate income taxes take 12 days, and property taxes take another 12. Americans will log four more days to pay other miscellaneous taxes, most notably including motor vehicle license taxes and severance taxes, and about 18 hours for estate and gift taxes.
Tax Freedom Day by State: Mississippi Comes First, Connecticut Last
Each state has its own Tax Freedom Day. This occurs not only because resi dents of different states pay different amounts of state and local taxes, but also because their federal tax payments can vary dramatically. Because of modest incomes and low state and local tax burdens, Mississippi celebrates its Tax Freedom Day first in the nation on March 26th, after only 85 days. Tennessee (March 27), South Carolina (March 29), Louisiana (March 30), and South Dakota (March 30) round out the top five.
High-income states pay much more in federal taxes, and they often have higher state-local taxes as well. Connecticut is the last in the nations to observe Tax Freedom Day, on May 2nd, with 122 days required for state taxpayers to pay the year’s tax total. Other states with late celebrations include New Jersey (April 29), New York (April 24), Maryland (April 17) and Washington (April 16).
How Tax Freedom Day Is Calculated: The Methodology
Tax Freedom Day answers the basic question, “What price is the nation paying for government?” An official government figure for total tax collections is divided by the nation’s total income. The answer this year is that taxes will amount to 27.68 percent of our income – the same percentage of the year accounted for by the 102 days from January 1 to April 12. Income and tax data are then parsed out to the states, yielding 50 state-specific Tax Freedom Days. The source for income and tax data is the National Income and Product Accounts pub lished by the Department of Commerce’s Bureau of Economic Analysis.
For more information, go to http://www.taxfoundation.org/taxfreedomday.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or firstname.lastname@example.org.