Tax Freedom Day falls on a different day every year, depending on the state.
Because Tax Freedom Day is the day in any given year where the nation has made enough money to pay off all of its taxes. All official income is counted as well as government payments. All taxes — from local to state to federal — are counted.
Tax Freedom Day is considered a key date by both taxpayers and lawmakers as it shows how long the nation must work to pay its taxes.
What is Tax Freedom Day 2018?
In 2018, Tax Freedom Day fell on April 19, which is 109 days into the year. This date was three days earlier than in 2017, which is largely due to recent changes to the federal tax law as well as the Tax Cuts and Jobs Act. Both of these factors significantly reduced federal taxes at both the individual and corporate level.
In 2018, taxpayers are expected to pay $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes. This totals $5.2 trillion, which is about 30 percent of America’s total income. The nation is expected to spend more as a whole on taxes than on the combined necessities of housing, food, and clothes.
If federal borrowing was included in the calculations for Tax Freedom Day, then it’s estimated that this day would occur around May 6th.
What’s the Purpose of Tax Freedom Day?
The purpose of Tax Freedom Day is to show taxpayers a theoretical look at the nation’s total tax bill — the idea being that taxpayers can compare the benefits they get from government infrastructure for paying taxes against the amount they potentially pay. The purpose is to assess the value of paying taxes and give taxpayers an idea of what portion of the year they work for themselves versus what portion of the year they work for the nation.
What Tax Does the Average American Pay?
In 2018, Americans are expected to work 44 days to pay individual income taxes at the state, local, and federal level. In addition, it will take 26 days to pay payroll taxes, and 15 days to pay sales and excise tax. Corporate income taxes will take 7 days, and it will take 11 days to pay property taxes. The remaining 6 days of the total 109 days will be spent on various other taxes such as customs, estate taxes, inheritance, and others.
How Does Federal Borrowing Factor In?
Expenses at the federal level have surpassed revenues since 2002, and the budget deficit has been over $1 trillion every year since 2009 and into 2012. In 2018, the annual deficit will most likely increase to more than $800 billion from the previous $665 billion.
Annual federal borrowing represents a growth in the federal deficit, which would cause future Tax Freedom Days to fall on later dates. The most recent Tax Freedom Day that included the deficit happened on May 25, 1945, which was during the last year of World War II.
Do Different States Have Different Tax Freedom Days?
Each state has slightly different tax policies, meaning Tax Freedom Day falls on different dates for different states. For example, the state of Washington’s Tax Freedom Day fell on April 19, Minnesota’s was April 27, and New York’s was May 14. Some early states include Arizona on April, Alabama’s was on April 5, and Idaho’s was on April 7.
History of Tax Freedom Day
The concept originally came from a Florida businessman named Dallas Hostetler. He came up with Tax Freedom Day in 1948 and trademarked it. He continued to calculate Tax Freedom Day every year for 20 years before retiring in 1971. From there, he ceded the trademark to the Tax Foundation, which has continued to calculate it every year since.
In 1990, the Tax Foundation also began calculating individual state Tax Freedom Days. The latest date that Tax Freedom Day has occurred was on May 1 in 2000. That year, 33 percent of the nation’s income went to taxes. In 1900, Tax Freedom Day would have come on January 22nd, which means less than six percent of American income went to taxes. The tax burden largely went up from there, with 12 percent paid in 1920 and over 24 percent by 1950.
By 1980, the tax burden reached 30 percent, and it has only gone down slightly in a few years after that before going up again.
Methodology of Tax Freedom Day
The Tax Foundation calculates every dollar included in the net national income. This includes all payments to the government that count as official taxes. They also include every tax paid by each state, regardless of whether it’s paid to the state in question, the federal government, local city or county governments, or the governments of other states. Leap days are not counted in calculations, which allows different years to be compared.
In 2018, the methodology was revamped and updated, which makes it a little more difficult to compare this year to previous years across states.
Tax Freedom Day Around the World
Other countries have also started to calculate their own Tax Freedom Days. Currently, such reports are published in eight countries, but they’re generally not comparable across the board to the U.S. due to differences in financial data.
Some examples of other countries’ Tax Freedom Days in 2017 include the United Kingdom on June 12, the Czech Republic on May 29, and Bosnia and Herzegovina on June 10. These were all later than America’s date that year, which was April 23.