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Tax Freedom Day

Tax Day Quickly Approaches


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By Erik Neilson
Thursday, April 11th, 2013

With tax season sweeping the nation, many Americans are looking for any kind of good news they can get in regards to filing. While it may not soften the blow entirely, some are taking stock in knowing that Tax Freedom Day® is right around the corner.

According to the Tax Foundation, “Tax Freedom Day® is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year.” The Tax Foundation goes on to say, “Tax Freedom Day provides Americans with an easy way to gauge the overall tax take-a task that can otherwise be daunting due to the multiplicity of taxes at various levels of government and 'hidden' taxes and fees that are often buried in the cost of living.”

It’s a lot to swallow at first glance, but the concept is actually rather simple. The Tax Foundation estimates that Americans will pay approximately $4.22 trillion in combined state and federal taxes this year, which amounts to 29.4% of the nation’s income.

Given percentage calculations based upon the 365 day calendar year, this amounts to 108 days from the start of 2013 until the nation as a whole will be able to make enough money to pay its entire tax bill, and this makes April 18th, 2013 Tax Freedom Day®.

A Day of Importance

If you’re thinking that Tax Freedom Day® is just another manufactured event concocted to help ease the pain of tax season, chances are you aren’t alone. The fact is, however, Tax Freedom Day® actually holds a fair amount of importance.

The calculations used in order to determine when the actual day is and what numbers are being run can help to indicate a great deal about the country as a whole, and it says a lot about how taxation has changed over time.

In 1900, for example, Americans paid just 5.9% in income tax, according to the Tax Foundation. This would have put Tax Freedom Day® at January 22nd, rather than this year's date of April 18th.

One thing that could easily be overlooked is the fact that this year’s Tax Freedom Day® is actually five days later than it was last year. A variety of factors are at play for delaying the date, including the fiscal cliff crisis that occurred towards the end of 2012 and the subsequent tax hike. The Tax Foundation also cites the investment and excise tax of the Affordable Care Act as a source for the delay.

It should come as no surprise that Tax Freedom Day® is further out than last year due to the above circumstances. The fact is, however, the event has occurred later in the year than this in the past.

In 2000, Tax Freedom Day® occurred on May 1st, meaning Americans were paying 33% in income taxes. The fluctuation of income tax rates means that Tax Freedom Day® could feasibly occur anytime within 30 days of when it falls now from year to year, especially considering the fact that the economy in America is expected to continue making a slow incline.

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Focusing on a State Level

Tax Freedom Day® may be recognized nationally on April 18th, but it’s important to understand that the date actually differs from state to state. Because taxation can differ on a state-to-state basis, some states will actually reach their Tax Freedom Day® before others.

Connecticut actually won’t reach the date until May 13th, making it the last state in the nation to hit the goal. Meanwhile, Louisiana and Mississippi have already hit their date, as residents earned enough income to pay off their taxes for the year on March 29th.

Clearly, there is a great deal of differentiation from state to state, with a month and half period between the first and last to reach their goals. The chart below gives a detailed description of state deadlines.

Tax Freedom Day Map 2013Source: The Tax Foundation

While Tax Freedom Day® may not be comforting to those who are getting ready to write their checks to the IRS, it does stand alone as an important event that helps to paint a clearer picture of how Americans pay their taxes, now and in the past.

It’s conceivable that the date could be pushed even further out next year, although much of this would have to do with how the economy evolves and how the government goes about sorting out the nation’s deficit.

 

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