Tax Freedom Day

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 government is counted, and every payment to the 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. 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 2010 is April 9, for a total average effective tax rate of 26.9 percent of the nation's income. The latest that Tax Freedom Day has occurred was May 1 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 2010, Alaska had the lowest total tax burden, earning enough to pay all their tax obligations by March 26. Connecticut had the heaviest tax burden— Tax Freedom Day there arrived April 27. New Jersey had the second heaviest tax burden, having to work until April 25 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:

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 1	33.00%
2001	April 27	31.80%
2002	April 17	29.20%
2003	April 14	28.40%
2004	April 15	28.50%
2005	April 21	30.20%
2006	April 24	31.20%
2007	April 24	31.10%
2008	April 16	29.00%
2009	April 8	26.60% -	2010	April 9	26.90%

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	[1]
Australia	112	30.7%	22 April	2008	Centre for Independent Studies	[2]
United States	103	28.2%	13 April	2009	Tax Foundation	[3]
Estonia	114	31.1%	24 April	2007	Eesti Maksumaksjate Liit (Estonian Taxpayers Association)	[4]
Uruguay	141	35.8%	11 May	2006	CPA Ferrere	[5] [6]
South Africa	132	36%	12 May	2008	Free Market Foundation	[7]
Hungary	140	38%*	20 May	2008	Hungarian Central Statistic Institute	[8]
New Zealand	141	39%	21 May	2008	Staples Rodway	[9]
Spain	141	39%	21 May	2008	Institución Futuro	[10]
Slovakia	142	38.8%	22 May	2008	Nadácia F.A.Hayeka	[11]
Bulgaria	147	40%	27 May	2009	Novinite	[12]
Brazil	147	40%	27 May	2008	Instituto Brasileiro de Planejamento Tributario	[13]
Lithuania	142	38.9%	23 May	2009	Lithuanian Free Market Institute	[14]
United Kingdom	134	36.7%	14 May	2009	Adam Smith Institute	[15]
Belgium	159	43.3%	8 June	2009	PricewaterhouseCoopers	[16]
Czech Republic	161	44.1%	11 June	2007	Liberální institut	[17]
Croatia	164	45%	13 June	2008	The Adriatic Institute for Public Policy	[18]
Canada	157	42.6%	6 June	2009	Fraser Institute	[19]
Poland	167	47.3%	14 June	2008	Centrum im. Adama Smitha	[20]
Slovenia	174	47.8%	24 June	2009	Business daily Finance	[21]
Germany	190	51.73%	8 July	2008	Bund der Steuerzahler	[22]
France	197	53.6%	16 July	2007	Contribuables associés	[23]
Israel	197	53.8%	15 July	2008	Jerusalem Institute for Market Studies	[24]
Sweden	209	57%	29 July	2007	Skattebetalarna	[25]
Norway	210	56.7%	29 July	2007	Skattebetalerforeningen	[26]

Leap year effects

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

Purpose

According to Neil Veldhuis, Director of Fiscal Studies, Fraser Institute, the purpose of Tax Freedom Day is to provide citizens of tax-paying countries with a metric with which to estimate their "total tax bill". The premise is that by comparing the benefits received by citizens to the amount they pay in taxes, the value of paying taxes can be assessed.

Criticism

In the book Filthy Lucre, Joseph Heath criticizes the idea that tax-paying is inherently different than consumption:

It would make just as much sense to declare an annual "mortgage freedom day", in order to let mortgage owners know what day they "stop working for the bank and start working for themselves". ...But who cares? Homeowners are not really "working for the bank"; they're merely financing their own consumption. After all, they're the ones living in the house, not the bank manager.

One distinction is that a mortgage is a voluntary contractual agreement, in which people may decline to participate, while taxation is involuntary and enforced with civil and criminal prosecution.

Mathematical

For Canada the Fraser Institute 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.

In America, 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 the US 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.[27] Tax Foundation materials do not use the phrase "tax burden of the average American", although members of the media often make this mistake.

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.[28] A 1 percent change would represent 3.65 days. From 1968 to 2009 the date has never left the 21-day range of April 13th to May 3rd.

See also

• Income tax

External links

• Tax Foundation's Tax Freedom Day
• Tax Freedom Day Clock A live clock that counts the days till/since Tax Freedom Day
• Tax Freedom Day (UK) calculated by the Adam Smith Institute
• Tax Freedom Day Clock (UK) A live clock that counts the days till/since UK Tax Freedom Day
• Criticism: Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens
  • Response to Criticism: Tax Freedom Day: A Description of Its Calculation and Answers to Some Methodological Questions