March 28, 2007

2007 Tax Freedom Day Press Conference Remarks by Scott Hodge

The Tax Foundation is the Nation’s oldest non-partisan organization dedicated to educating the American public on tax and fiscal policy at all levels of government. This year, the Tax Foundation is celebrating its 70th Anniversary.

For the past 35 years, the Tax Foundation has calculated Tax Freedom Day (TFD), America’s best-known tax date after April 15th. TFD is the day we calculate each year in which Americans have worked long enough to pay all of their tax bills – state, local, and federal – and can now begin to work to pay their families’ bills.

Until TFD, everything they earn will go to finance the cost of their federal, state, and local governments. No other measure captures the ups and downs of the American tax burden as simply as this date.

Before we announce TFD for 2007, let me take a few minutes to recount the history of TFD. The concept of TFD can be traced to Florida businessman Dallas Hostetler, who devised the idea in 1948.

He waited a devise to show his fellow Floridians that they actually do pay a lot of taxes, even though the state does not impose an income tax that people can see the direct cost of each year. He popularized the Tax Freedom Day concept and registered it with the U.S. Copyright Office in 1953.

When he retired in the early 1970s, he donated the concept and the copyright to the Tax Foundation.

In the 3 ½ decades since then, Tax Freedom Day has not only become ingrained in American political culture, but it has also gained international popularity as well. Groups in 9 other countries now calculate TFD for their countries.

Not only is Tax Freedom Day a popular event in Western countries such as Canada and Great Britain, but it is very poplar in former Communist countries such as Slovakia, Czech Republic, Lithuania, Poland.

Other nations that celebrate Tax Freedom Day include Israel, South Africa, and India.

In recent years, Tax Foundation economists have performed an enormous amount of research in order to calculate the historical levels of TFD going all the way back to the turn of the 20th Century.

It may seem quaint today, but when Chief Justice Oliver Wendell Holmes said in 1927 that “Taxes are what we pay for civilized society,” Americans only worked until February 8th to pay their total tax burden.

America’s tax burden remained relatively low until WWII which permanently boosted the size and cost of government. By 1943, TFD moved into April and it has never retreated since.

In 2000, America’s tax burden reached its highest level ever — May 5, or 125 days into the year. This was the result of a booming economy and the Tech Bubble which flooded state and federal coffers with record levels of tax payments.

As my colleague Curtis Dubay will explain, in a growing economy, tax collections will always grow faster than income because of the progressive nature of our federal income tax code. Economic expansion always generates increasing tax revenue-unless tax rates are cut.

The tax cuts enacted in 2001 and 2003 did began to bring TFD back down to earth — reducing the nation’s tax burden by nearly three weeks. Those benefits however were short lived.

This year, there is bad news for stressed-out taxpayers as they rush to meet the April 15th filing deadline — Tax Freedom Day is headed back in the wrong direction.

In 2007, Americans will pay 32.7 percent, or nearly one-third, of their income in taxes. As a result, TFD this year will fall on Monday, April 30.

In other words, Americans will work 120 days into the year to pay all of their tax bills. This means the tax burden has jumped two days over last year and nearly 2 weeks over the past four years.

As has been the case for many years, Americans will continue to work longer to pay their tax bills than they will work to pay for their food, clothing, and housing costs combined.

In fact, Americans will work 17 days longer to pay their federal taxes than they work to pay for their housing costs. And, they work 11 days longer to pay their state and local taxes than they work to put food on the table.

Its no wonder that the Tax Foundation’s annual public opinion poll we released last week showed that 58% of adults thought their income taxes were too high and that 78% thought the tax system needs major changes or to be completely overhauled.

Its interesting to note that while nearly 33% of the nation’s income goes to pay taxes, when we asked Americans what the maximum percentage of a person’s income that should go to taxes, respondents said 15% should be the maximum tax burden.

The Tax Freedom Day story is not entirely a national one. Each year, the Tax Foundation calculates an individual TFD for each state.

My colleague Curtis Dubay will talk about Tax Freedom Day in the States and the future direction of the nation’s tax burden.

2007 Tax Freedom Day Press Conference Remarks by Curtis Dubay