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'''Tax Freedom Day''' is the first day of the year in which a [[nation]] as a whole has theoretically earned enough income to fund its annual [[tax burden]]. It is annually calculated in the United States by the [[Tax Foundation]]—a [[Washington, D.C.]]-based tax research organization. Every dollar that is officially considered income by the U.S. government is counted, and every payment to the U.S. government that is officially considered a tax is counted. Taxes at all levels of government—local, state and federal—are included.
'''Tax Freedom Day''' is the first day of the year in which a [[nation]] as a whole has theoretically earned enough income to fund its annual [[tax burden]]. It is annually calculated in the United States by the [[Tax Foundation]]—a [[Washington, D.C.]]-based tax research organization. Every dollar that is officially considered income by the U.S. government is counted, and every payment to the U.S. government that is officially considered a tax is counted. Taxes at all levels of government—local, state and federal—are included.


The concept of Tax Freedom Day was developed and copyrighted in 1948 by Florida businessman Dallas Hostetler, who calculated it each year for the next two decades. In 1971, Hostetler retired and transferred the copyright to the [[Tax Foundation]]. The Tax Foundation has calculated Tax Freedom Day for the United States ever since, using it as a tool for illustrating the proportion of national income diverted to fund the annual cost of [[government]] programs. In 1990, the Tax Foundation began calculating the specific Tax Freedom Day for each individual state.
The concept of Tax Freedom Day was developed in 1948 by Florida businessman Dallas Hostetler, who trademarked the phrase "Tax Freedom Day" and calculated it each year for the next two decades. In 1971, Hostetler retired and transferred the trademark to the [[Tax Foundation]]<ref>[http://tess2.uspto.gov/bin/showfield?f=doc&state=1gmu6p.2.1 U.S. Patent and Trademark Office, "Tax Freedom Day"]</ref>. The Tax Foundation has calculated Tax Freedom Day for the United States ever since, using it as a tool for illustrating the proportion of national income diverted to fund the annual cost of [[government]] programs. In 1990, the Tax Foundation began calculating the specific Tax Freedom Day for each individual state.


==United States==
==United States==

Revision as of 00:40, 1 February 2009

Tax Freedom Day is the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden. It is annually calculated in the United States by the Tax Foundation—a Washington, D.C.-based tax research organization. Every dollar that is officially considered income by the U.S. government is counted, and every payment to the U.S. government that is officially considered a tax is counted. Taxes at all levels of government—local, state and federal—are included.

The concept of Tax Freedom Day was developed in 1948 by Florida businessman Dallas Hostetler, who trademarked the phrase "Tax Freedom Day" and calculated it each year for the next two decades. In 1971, Hostetler retired and transferred the trademark to the Tax Foundation[1]. The Tax Foundation has calculated Tax Freedom Day for the United States ever since, using it as a tool for illustrating the proportion of national income diverted to fund the annual cost of government programs. In 1990, the Tax Foundation began calculating the specific Tax Freedom Day for each individual state.

United States

In the United States, Tax Freedom Day for 2008 is April 23, for a total average effective tax rate of 30.8 percent of the nation's income. The latest that Tax Freedom Day has occurred was May 3 in 2000. In 1900, Tax Freedom Day arrived January 22, for an effective average total tax rate of 5.9 percent of the nation's income. According to the Tax Foundation, the most important factor driving changes in Tax Freedom Day from year to year is growth in incomes, as the progressive structure of the U.S. federal tax system causes taxes as a percentage of income to rise along with inflation.

Tax Freedom Day varies among the 50 U.S. states, as incomes and state & local taxes differ from state to state. In 2008, Alaska had the lowest total tax burden, earning enough to pay all their tax obligations by March 29. Connecticut had the heaviest tax burden— Tax Freedom Day there arrived May 8. New Jersey had the second heaviest tax burden, having to work until May 7 to pay their total taxes.

According to the Tax Foundation, the following is a list of Tax Freedom Days in the U.S. since 1900:[2]

Year TFD Percentage Tax Burden
1900 January 22 5.90%
1910 January 19 5.00%
1920 February 13 12.00%
1930 February 12 11.70%
1940 March 7 17.90%
1950 March 31 24.60%
1960 April 11 27.70%
1970 April 19 29.60%
1980 April 21 30.40%
1990 April 21 30.40%
2000 May 3 33.60%
2001 April 30 32.60%
2002 April 19 29.80%
2003 April 16 29.00%
2004 April 17 29.30%
2005 April 23 30.90%
2006 April 26 31.50%
2007 April 26 31.70%
2008 April 23 30.80%

Criticisms

Critics object to misleading portrayals of Tax Freedom Day in the popular media. It is commonly referred to as the day "the average American" has earned enough to pay his (or her) tax obligations. See for example this ABC News report.[3] While Tax Freedom Day presents an "average American" tax burden, it is not a tax burden typical for an American. That is, the tax burdens of most Americans are substantially overstated by Tax Freedom Day. The larger tax bills associated with higher incomes increases the average tax burden above that of most Americans.

Another criticism is that the calculation includes capital gains taxes but not capital gains income, thus overstating the tax burden. For example, in the late 1990s Tax Freedom Day moved later, reaching its latest date ever in 2000, but this was largely due to capital gains taxes on the bull market of that era rather than an increase in tax rates. In other words, variations in capital gains income and their associated taxes cause changes in the amount of taxes, but not in the income used in the calculation of Tax Freedom Day.

The Tax Foundation defends its methodology by pointing out that Tax Freedom Day is the U.S. economy's overall average tax burden -- not the tax burden of the "average" American, which is how it is often misinterpreted by members of the media.[1] Tax Foundation materials do not use the phrase "tax burden of the average American", although members of the media often make this mistake.[4]

Secondly, the Tax Foundation argues that the Tax Freedom Day calculation does not include capital gains as income because it uses income and tax data directly from the Bureau of Economic Analysis (BEA). BEA has never counted capital gains as income since they don't represent current production available to pay taxes, and so the Tax Foundation excludes them as well. Additionally, the Tax Foundation argues that the exclusion of capital gains income is irrelevant in most years since including capital gains would only shift Tax Freedom Day by 1 percent in either direction in most years.[2] The reader should note however that 1 percent is 3.65 days, and since 1968 the date has never left the 18-day range of April 16 to May 3. Shifting Tax Freedom Day 1 percent earlier would be a substantial change by historical standards.

Tax Freedom Day Around the World

Many other organizations in countries throughout the world now produce their own "Tax Freedom Day" analysis. According to the Tax Foundation, Tax Freedom Day reports are currently being published in eight countries. Due to the different ways that nations collect and categorize public finance data, however, Tax Freedom Days are not comparable from one country to another.

Tax Freedom Days for countries by date
Country Day of Year % Burden Date of Year Updated Source Reference
India 74 20% 14 March 2000 Centre for Civil Society [3]
Australia 112 30.7% 22 April 2008 Centre for Independent Studies [4]
United States 113 30.8% 23 April 2008 Tax Foundation [5]
Estonia 114 31.1% 24 April 2007 Eesti Maksumaksjate Liit (Estonian Taxpayers Association) [6]
Uruguay 141 35.8% 11 May 2006 CPA Ferrere [7] [8]
South Africa 132 36% 12 May 2008 Free Market Foundation [9]
Hungary 140 38% 20 May 2008 Hungarian Central Statistic Institute [10]
New Zealand 141 39% 21 May 2008 Staples Rodway [11]
Spain 141 39% 21 May 2008 Institución Futuro [12]
Slovakia 142 38.8% 22 May 2008 Nadácia F.A.Hayeka [13]
Brazil 147 40% 27 May 2008 Instituto Brasileiro de Planejamento Tributario [14]
Lithuania 150 41% 30 May 2008 Lithuanian Free Market Institute [15]
United Kingdom 153 42% 2 June 2008 Adam Smith Institute [16]
Belgium 161 44.1% 10 June 2008 PricewaterhouseCoopers [17]
Czech Republic 161 44.1% 11 June 2007 Liberalni Institut [18]
Croatia 164 45% 13 June 2008 The Adriatic Institute for Public Policy [19]
Canada 165 44.8% 14 June 2008 Fraser Institute [20]
Slovenia 168 46% 17 June 2008 Free Society Institute [21]
Poland 175 48% 25 June 2007 Centrum im. Adama Smitha [22]
Germany 190 51,73% 8 July 2008 Bund der Steuerzahler [23]
France 197 53,6% 16 July 2007 Contribuables associés [24]
Israel 197 53.8% 15 July 2008 Jerusalem Institute for Market Studies [25]
Sweden 209 57% 29 July 2007 skattebetalarna [26]
Norway 210 56.7% 29 July 2007 Skattebetalerforeningen [27]

For Canada the Fraser Institute ([28]) also includes a “Personal Tax Freedom Day Calculator” that estimates a customized Tax Freedom Day based on additional variables such as age of household head, sex of household head, marital status and number of children. However, the Fraser Institute's figures have been disputed. For example, a 2002 study by Osgoode Hall Law Professor Neil Brooks argues the Fraser Institute's Tax Freedom Day analysis includes flawed accounting, including the exclusion of several important forms of income and overstating tax figures, moving the date nearly two months later.[5]

For people in the United States, there is a "Personal Tax Freedom Day Calculator" at mytaxfreedomday.com [29] that will estimate your personal Tax Freedom Day based on a variety of variables.

Current TFD development in the World

Annual development of Tax Freedom Days for selected countries
Country %Burden 2006 %Burden 2007 % Burden 2008 Source Reference
Australia N/A N/A 30.7% Centre for Independent Studies [30]
United States 31.5% 31.7% 30.8% Tax Foundation [31]
Estonia N/A N/A 31.1% Eesti Maksumaksjate Liit (Estonian Taxpayers Association) [32]
Uruguay 35.8% N/A N/A CPA Ferrere [33] [34]
South Africa N/A 35.5% 36% Free Market Foundation [35]
Hungary N/A N/A 38% Hungarian Central Statistic Institute [36]
New Zealand N/A N/A 39% Staples Rodway [37]
Spain N/A N/A 39% Institución Futuro [38]
Slovakia N/A N/A 38.8% Nadácia F.A.Hayeka [39]
Brazil N/A N/A 40% Instituto Brasileiro de Planejamento Tributario [40]
Lithuania N/A N/A 41% Lithuanian Free Market Institute [41]
United Kingdom 42.5% 42.2% 42% Adam Smith Institute [42]
Belgium 43.7% 43.8% 43.8% PricewaterhouseCoopers [43]
Czech Republic 44.9% 44.1% 43.2% Liberalni Institut [44]
Croatia N/A N/A 45% The Adriatic Institute for Public Policy [45]
Canada N/A N/A 44.8% Fraser Institute [46]
Slovenia N/A N/A 46% Free Society Institute [47]
Poland N/A N/A 48% Centrum im. Adama Smitha [48]
Germany N/A N/A 51,73% Bund der Steuerzahler [49]
France N/A N/A 53,6% Contribuables associés [50]
Israel N/A N/A 53.8% Jerusalem Institute for Market Studies [51]
Sweden N/A N/A 57% skattebetalarna [52]
Norway N/A N/A 56.7% Skattebetalerforeningen [53]

Leap year effects

Since most of the years are not divisible by 4, Leap years have one day more, 29th February. This creates some bias in Tax Freedom Days charts. However, this bias is equal to roughly 1/366, which is about 0.27%.

See also

Notes

  1. ^ U.S. Patent and Trademark Office, "Tax Freedom Day"
  2. ^ The Tax Foundation - Tax Freedom Day and Tax Burden, 1900-2008
  3. ^ ABC News: Celebrating Tax Freedom
  4. ^ The Tax Foundation - America Celebrates Tax Freedom Day®
  5. ^ Tax Freedom Day - A Flawed, Incoherent, and Pernicious Concept by Professor Neil Brooks. Retrieved December 11, 2005.
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