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Tax Freedom Day Is Again Later For US Taxpayers

by Mike Godfrey, Tax-News.com, Washington

05 April 2013


Analysis by the Tax Foundation (TF) has confirmed that Americans will have to work five days longer than in 2012, from January 1 to April 18 (108 days), before they have earned enough money to pay this year's United States tax obligations at the federal, state and local levels.

In a new TF study, it has also calculated that, if the federal Government raised taxes enough to close the budget deficit – an additional USD833bn – the so-called "Tax Freedom Day" would come on May 9 instead of April 18.

One of the study's authors, William Bride, said that: "The total tax bill at all levels comes to approximately USD4.2 trillion, or 29.4% of (Americans) total income. That means Americans will pay more in taxes in 2013 than they will spend on food, clothing, and housing combined."

Tax Freedom Day is five days later than last year mainly due to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the TF noted that the Affordable Care Act's investment tax and excise tax went into effect, and, with the economy expected to continue its slow recovery, profits, incomes and tax revenues are also being boosted.

The TF also pointed out that: "The total tax burden borne by residents of different states varies considerably, not only due to differing state tax policies, but also because of the progressivity of the federal tax system."

This means higher-income states celebrate Tax Freedom Day later. Residents of Connecticut (May 13), New York (May 6), and New Jersey (May 4) face a significantly higher federal tax burden than lower-income states. Residents of Mississippi and Louisiana will bear the lowest average tax burden in 2013, with Tax Freedom Day having arrived for them on March 29. Also early was Tennessee, where Tax Freedom Day arrived on April 2.

In addition, five major categories of taxes dominated the tax burden. The TF has calculated that individual income taxes – including federal, state and local – require 40 days of work, and payroll taxes take another 24 days of work. Sales and excise taxes, mostly state and local, take 15 days to pay off; property taxes take 12 days; and corporate income taxes take another 9 days.

Historically, the date for Tax Freedom Day has fluctuated significantly. It is said that the latest-ever nationwide Tax Freedom Day was May 1, 2000 – meaning that 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.

TAGS: tax | business | sales tax | property tax | corporation tax | payroll | excise duty | food | United States | revenue statistics | individual income tax

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