TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, April 19, 2018

Today Is Tax Freedom Day — Earlier In LA, TN, AL & OK, Later In NY, NJ, CT & IL

Tax Foundation, Tax Freedom Day 2018 is April 19th:

  • Tax Freedom Day is a significant date for taxpayers and lawmakers because it represents how long Americans as a whole have to work in order to pay the nation’s tax burden.
  • This year, Tax Freedom Day falls on April 19, 109 days into 2018.
  • Tax Freedom Day will be three days earlier than it was in 2017, in large part due to the recent federal tax law, the Tax Cuts and Jobs Act, which significantly lowered federal individual and corporate income taxes.
  • In 2018, Americans will pay $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes, for a total bill of $5.2 trillion, or 30 percent of the nation’s income.
  • Americans will collectively spend more on taxes in 2018 than they will on food, clothing, and housing combined.
  • If you include annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur 17 days later, on May 6th.

Tax Freedom Day

Center on Budget and Policy Priorities, Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens:

The Tax Foundation released its annual “Tax Freedom Day” report today that, once again, can leave a strikingly misleading impression of tax burdens — showing an average federal tax rate across the United States that’s likely higher than the tax rate that 80 percent of U.S. households actually pay.

To project the day when “the nation as a whole has earned enough money to pay its total tax bill for the year,” the Tax Foundation calculates the average tax rate by measuring tax revenues as a share of the economy (similar to estimates of total revenues as a share of gross domestic product, or GDP).

In a progressive tax system like that of the United States, only upper-income households on average pay federal tax at rates that are equal to or above federal revenues as a share of the economy.  Estimates from the nonpartisan Tax Policy Center (TPC) show that low- and middle-income households (about 80 percent of all households) will pay a smaller share of their income in federal taxes this year than the Tax Foundation’s average tax rate.

The Tax Foundation acknowledges this issue in a methodology paper addressing its calculation of Tax Freedom Day, noting that its estimates reflect the “average tax burden for the economy as a whole, rather than for specific subgroups of taxpayers.” Consequently, those who report on Tax Freedom Day as if it represents the day until which the typical American must work to pay his or her taxes are misinterpreting these figures and inadvertently fostering misimpressions about the taxes that most Americans pay.

Moreover, the Tax Foundation suggests that people spend part of the year working for the government and part of it working for themselves, becoming “free” only when they get to work for themselves.  In reality, taxes pay for services that benefit us every day and are central to our idea of freedom.  Few Americans would likely feel more “free” if Tax Freedom Day came earlier in the year because the federal government stopped providing for national security, maintaining infrastructure, conducting food safety inspections, or testing prescription drugs.

Finally, the report’s estimates of state and local tax burdens suffer from a number of serious methodological flaws (see box below).

http://taxprof.typepad.com/taxprof_blog/2018/04/today-is-tax-freedom-day-earlier-in-la-tn-al-ok-later-in-ny-nj-ct-il.html

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