Tax Freedom Day Arrives Earlier For US Taxpayers

by Mike Godfrey, Tax-News.com, Washington

13 April 2009

'Tax Freedom Day' will arrive on April 13 this year for taxpayers in the United States - eight days earlier than it fell last year - according to the Tax Foundation's annual calculation using the latest government data on income and taxes.

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 28.2% of US income, and the stretch of 103 days from January 1 to April 13 is 28.2% of the year.

Thanks to the recession decreasing tax revenues faster than incomes, and the temporary tax cuts for 2009 and 2010 contained in the stimulus legislation, Tax Freedom Day arrives more than a week earlier than last year, and a full two weeks earlier than in 2007. But, the Tax Foundation points out, Americans will still pay more in taxes this year than they will spend on food, clothing and housing combined.

When the unprecedented USD1.5 trillion federal deficit is included in the measure, Tax Freedom Day is pushed out to May 29 - the latest date in the year this deficit-inclusive measure has ever fallen. The only previous years when taxes and deficit spending comprised a similarly large share of national income were 1944 and 1945, at the peak of World War II, says the Tax Foundation.

Tax Freedom Day has fluctuated considerably in past decade along with the swings and roundabouts of the economy and federal tax policy. In 2000, Tax Freedom Day was celebrated May 3, the latest date ever. A string of tax cuts between 2001 and 2003 pushed Tax Freedom Day up by more than two weeks, so that it fell on April 16 in 2003 and April 17 in 2004. For the next three years, incomes and tax collections soared, pushing Tax Freedom Day back to April 26 in 2007.

Since 2006, corporate tax revenues have fallen sharply and are projected to do so again in 2009. Personal income taxes also fell in 2008 and are expected to fall again in 2009 due to the weakening economy and tax cuts in the stimulus package. Because most of this year's stimulus package's tax cuts continue through 2010, Tax Freedom Day could be expected to shift later by a few days next year only if the economy improves. For 2011, both the stimulus package's tax cuts and the earlier Bush tax cuts of 2001 and 2003 are set to expire. The future timing of Tax Freedom Day will depend on which tax cuts Congress and the Obama Administration choose to extend through 2011 and thereafter.

According to the Tax Foundation, five major categories of tax dominate the tax burden. Individual income taxes, both federal and state, require 38 days' work. Payroll taxes take another 27 days' work. Sales and excise taxes, mostly state and local, take 15 days to pay off. Corporate income taxes take six days, and property taxes take 12. Americans will log four more days to pay other miscellaneous taxes, most notably including motor vehicle license taxes and severance taxes, and about one day for estate taxes.

Residents of Alaska will bear the lowest average tax burden in 2009. Because of their modest incomes and extremely low state-and-local tax burden, the Tax Foundation estimates that Alaska's Tax Freedom Day for 2009 to be March 23. Louisiana, Mississippi, South Dakota and West Virginia complete the top five states that will experience Tax Freedom Day earliest in 2009.

The Tax Foundation calculates that residents of Connecticut will have to wait until the 120th day of the year - April 30 - before earning enough to pay all their taxes. Because Connecticut's income per capita is higher than in any other state, its residents pay high federal income taxes. Nearby states New Jersey and New York are second and third, respectively. California and Maryland round out the top five.

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