Americans To Celebrate Tax Freedom Day Later In 2006

by Mike Godfrey, Tax-News.com, Washington

17 April 2006

Despite recent tax cuts, Americans will celebrate this year's Tax Freedom Day on April 26, three days later than in 2005, according to the Tax Foundation’s annual calculation.

Surpisingly, Tax Freedom Day will fall ten days later in 2006 than it did in 2003 and 2004 when, according to Tax Foundation President Scott A. Hodge, a combination of slow income growth and tax cuts caused Tax Freedom Day to arrive comparatively early.

“The economy has been growing at a good clip since mid-2003,” observed Hodge, “and those growing incomes are pushing people into higher tax brackets. When that happens, tax collections grow faster than incomes.”

However, 2006’s Tax Freedom Day is still considerably earlier than it was in 2000, when the economic boom, the tech bubble and higher tax rates pushed tax burdens to a record high, and Tax Freedom Day was postponed until May 3.

Tax Freedom Day is calculated by dividing the official government tally of all taxes - federal, state and local - collected in each year by the official government tally of all income earned in each year. This year the Tax Foundation calculates that taxes will amount to 31.6 percent of total US income. The annual report then compares the number of days Americans work to pay taxes to the number of days they work to support themselves.

According to the Tax Foundation, In 2006, Americans will work 77 days to afford their federal taxes and 39 more days to afford state and local taxes. That makes taxation a bigger financial burden than housing and household operation (62 days), health and medical care (52 days), food (30 days), transportation (30 days), recreation (22 days), or clothing and accessories (14 days).

“Despite the tax cuts passed by the federal government recently, Americans will still spend more on taxes than they spend on food, clothing and housing combined,” noted Hodge.

By state, six out of the ten states with the heaviest tax burdens and the latest Tax Freedom Days are in the northeast: Connecticut (May 12), New York (May 9), New Jersey (May 6), Massachusetts (May 2), Maine (May 1) and Rhode Island (May 1). The other four are Washington (May 4), Minnesota (May 3), California (April 30) and Illinois (April 30). Most of these states have large metropolitian areas where more high paid jobs are situated, meaning many of the citizens earn enough to pay income tax at the highest rates.

The ten states with the lightest total tax burdens celebrate Tax Freedom Day the earliest. Alabama’s April 11 is the earliest of all. The next nine are Alaska (April 12), Mississippi (April 13), Oklahoma (April 14), Tennessee (April 14), New Mexico (April 15), South Dakota (April 16), Montana (April 16), Idaho (April 16) and West Virginia (April 17).

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