Tax Day was almost a week ago, but today (April 21st) is actually the day that you’ve settled up your debt to Uncle Sam. Congratulations! Your bill is paid in full!
April 21st is Tax Freedom Day, the day when the nation as a whole has earned enough money to pay its total tax bill for the year. If you‘re calculating the math in your mind, then you’ve realized that theoretically we’ve just spent 111 days working not for ourselves but to pay off our government’s ever increasing bills. Even more, we had to work three days more than last year due mainly to the country’s continued slow economic recovery.
Unlike other celebratory holidays, Tax Freedom Day, which was founded 65 years ago by a Florida business, is really nothing to celebrate. An illustration of the cost of government, each year the Tax Foundation divides all federal, state, and local taxes by the nation’s income to pinpoint this day.
According to the Tax Foundation, this year Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2 percent of income. That means we’ll spend more on taxes than on food, clothing, and housing combined!
And each state has its own Tax Freedom Day as well. For example, Connecticut and New Jersey have the highest tax burden that won’t be paid off until May 9th. Louisiana residents have the lowest tax burden and that was already paid off March 30th. States in the Northeast celebrate the latest Tax Freedom Days as they are among the highest in terms of state and local taxes paid per person, reflecting their relative wealth. Property and state income taxes make up a huge portion of the revenue sources for these states, which tend to boast expensive property holdings and high incomes.
So what does this mean for our everyday lives? It’s a reminder that government spending has a very real impact on the each American.
We often focus on the big numbers such as the $3.8 trillion in federal spending this year and the $3 trillion in federal revenue. Tax Freedom Day personalizes just how hard Americans have to work each year to pay for what the government spends on other Americans.
It would be interesting to ask Americans how many of them know that they’ve spent the first third of the year working for the Tax Man? And then asking if they would rather get back a few weeks or even a month’s worth of their wages through lower taxes? Perhaps it would lead to a revolution and new support for tax reform that lowers the federal tax rate and demands that our leaders cut spending.
The timing of Tax Freedom Day is also a two-edged sword though. Lower taxes rates are good for our individual pockets and for business but they tend to stimulate the economy. Economic booms boost growth and drives federal revenues causing us to celebrate Tax Freedom Day a little later. That explains why this year’s date is a few days later than last year.
At the end of the day, what matters to most Americans is that they pay a tax rate they feel is manageable and not burdensome. As we reported last week, most Americans think they pay too much, but the question is whether our leaders in Washington will pay attention to our wants.