Spring is here, but we’re still not free. Tax Freedom Day® — the day each year in which Americans have worked long enough to pay all of their state, local and federal tax bills — arrives on April 17 this year. That means Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to pay this year’s combined 29.2% federal, state and local tax bill. That is four days later than last year and a full week later than it was in 2009, at the low point of the Great Recession.
As the economic recovery continues, individual incomes and corporate profits will rise, increasing tax revenues and pushing Tax Freedom Day later in the year. The latest-ever Tax Freedom Day was May 1, 2000 — meaning Americans paid 33.0% of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9% of their income in taxes, meaning Tax Freedom Day came on January 22. Americans now pay more in taxes than they spend on food, clothing and housing combined.
For nearly 40 years, the Tax Foundation has calculated Tax Freedom Day, which has become America’s most recognizable measure of the cost of government. However, this marks the eleventh year in row in which the federal government will spend even more than it takes in. If the federal government raised taxes enough to close this year’s budget deficit — an additional $1.014 trillion — Tax Freedom Day would come 27 days later, on May 14. That is just one week shy of the latest date on record for this deficit inclusive measure, which occurred at the peak of World War II, on May 21, 1945.
Putting aside these future obligations, let’s look at the breakdown of the current tax burden. First, the federal government will cost us almost twice as much as all state and local governments combined. It will take 69 days to pay federal taxes versus 38 days to pay state and local taxes. In 1932, it took just 10 days to pay federal taxes, and 46 days to pay state and local taxes.
The federal tax burden is dominated by individual income and payroll taxes. Of the 69 days Americans will spend on this year’s federal tax burden, 32 days are from individual income taxes and another 23 days are from payroll taxes. Extension of the payroll tax holiday this year took about 3 days off the burden. Corporate income taxes are the third largest federal tax burden, and will take 9 days to pay this year. Corporate taxes are ultimately passed on to individuals in the form of higher prices, lower wages or employment levels, or lower share value.
The state and local tax burden is dominated by property taxes and sales taxes, which each take about 12 days to pay off. Individual income taxes at the state and local level add another 8 days to the burden.
The Tax Foundation also calculates Tax Freedom Day by state. The total tax burdens borne by residents of different states vary considerably, not only due to differing state tax policies but also because the steep progressivity of the federal tax system means higher-income states like Connecticut, New Jersey and New York face a significantly higher total federal tax burden than lower-income states. Residents of Tennessee will bear the lowest average tax burden in 2012, with Tax Freedom Day for them coming on March 31. Also early are Louisiana (April 1), Mississippi (April 1), South Carolina (April 3) and South Dakota (April 4).
For more information, including historical charts showing how Tax Freedom Day has changed over the years, please see our website at: TaxFoundation.org/TaxFreedomDay.
Will McBride is an economist at the Tax Foundation.