May 15, 2012

America Celebrates Tax Freedom Day®

Tax Freedom Day® to Arrive April 23 in 2008

America Will Work Three Days Less to Pay Taxes in 2008 than in 2007; Stimulus Rebates Push Date of Celebration Up

Tax Freedom Day® will fall on April 23 in 2008, according to the Tax Foundation’s annual calculation using the latest government data on income and taxes. (Click here to read the full study).

That’s three days earlier than in 2007. Stimulus rebates and a projection of slow growth in 2008 are the principal reasons for the earlier celebration.

Tax Freedom Day, 1980-2008 (click for larger image)

The study is Tax Foundation Special Report No. 160, “America Celebrates Tax Freedom Day®,” by Tax Foundation senior economist Gerald Prante and Tax Foundation president Scott Hodge.

In addition to announcing the nation’s Tax Freedom Day®, the new study compares tax payments to other major consumer expenditures, traces the course of America’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, and finally calculates a Tax Freedom Day® for each state.

Taxes vs. Other Expenses

“Government continues to dominate the American taxpayer’s budget,” said Tax Foundation president Scott Hodge. “Americans will still spend more on taxes in 2008 than they will spend on food, clothing and housing combined.”

In 2008, Americans will work 74 days to afford their federal taxes and 39 more days to pay state and local taxes. Meanwhile, buying food requires 35 days of work, clothing 13 days, and housing 60 days. Other major categories are health and medical care (50 days), transportation (29 days), and recreation (21 days).

Days Americans Work to Pay Taxes Compared to Other Expenses, 2008 (click to enlarge)

Bush Era Has Seen Tax Freedom Day® Fluctuate Substantially

“Tax freedom has been a see-saw affair in recent years,” said Tax Foundation senior economist Gerald Prante. “In 2000, Tax Freedom Day® was celebrated May 3, the latest date ever. Then a string of tax cuts between 2001 and 2003 pushed Tax Freedom Day® up by more than two weeks, so that it fell on April 16 in 2003 and April 17 in 2004. For the next three years, incomes and tax collections soared, pushing Tax Freedom Day® back to April 26 in 2007. Now the stimulus rebates and a projected slowing of income growth have made Tax Freedom Day® come three days earlier, on April 23.”

Which Taxes Are Biggest?

Five major categories of tax dominate the tax burden. Individual income taxes, both federal and state, require 42 days’ work. Payroll taxes take another 28 days’ work. Sales and excise taxes, mostly state and local, take 16 days to pay off. Corporate income taxes take 13 days, and property taxes take 12.

Days Spent Working to Pay Various Taxes, 2008 (click to enlarge)

Tax Freedom Day® by State

Alaskans kick off the celebration of Tax Freedom Day® on March 29, more than a week before any other state’s taxpayers. Mississippi (April 7), Montana and West Virginia (April 8), and Alabama (April 9) round out the first five. The next five are Kentucky (April 10), Tennessee and Oklahoma (April 11), and New Mexico and South Dakota (April 12).

Tax Freedom Day® is early in low-income states because the federal income tax hits most of their federal income taxes at the lower rates, 10% and 15%. Alaska stands out as an exception: income and federal tax payments are above average there, but state-local taxes are extraordinarily low.

Three states will have to wait until May to celebrate their state-specific Tax Freedom Days: Connecticut, New Jersey and New York. Although they have high state-local taxes too, the main culprit is the progressive federal income tax. States with large metropolitan areas offer higher-paying jobs, and as a result, many of the citizens earn enough to pay income tax at the highest rates — currently 25%, 28%, 33% and 35%. If those rates rise, as they are scheduled to do in 2011, these states will bear the brunt.

Other states where citizens wait unusually long for Tax Freedom Day® are California (April 30), Washington (April 29), Massachusetts (April 28), Maryland (April 28), Minnesota (April 27), and Florida and Hawaii on April 26.

Tax Freedom Day by State, 2008 (click to enlarge)

How Tax Freedom Day® Is Calculated

Tax Freedom Day® answers the basic question, “What price is the nation paying for government?” An official government figure for total tax collections is divided by the nation’s total income. The answer this year is that taxes will amount to 30.8 percent of our income, and the stretch of 113 days from January 1 to April 23 is 30.8 percent of the year. Income and tax data are then parsed out to the states, yielding 50 state-specific Tax Freedom Days.

If you would like more information on Tax Freedom Day® methodology, read Tax Foundation Working Paper No. 3, “Tax Freedom Day: A Description of Its Calculation and Answers to Some Methodological Questions.

Table 1
Tax Freedom Day and Tax Burden, Selected Years 1900 – 2008

Tax Freedom Day

Taxes as a Percentage of Income

1900 January 22 5.9%
1910 January 19 5.0%
1920 February 13 12.0%
1930 February 12 11.7%
1940 March 7 17.9%
1950 March 31 24.6%
1960 April 11 27.7%
1970 April 19 29.6%
1980 April 21 30.4%
1990 April 21 30.4%
2000 May 3 33.6%
2001 April 30 32.6%
2002 April 19 29.8%
2003 April 16 29.0%
2004 April 17 29.3%
2005 April 23 30.9%
2006 April 26 31.5%
2007 April 26 31.7%
2008 April 23 30.8%
Source: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Tax Foundation.
Table 2
Tax Freedom Day by State and Rank, Calendar Year 2008
State Tax Freedom Day Rank
United States April 23
Alabama April 9 46
Alaska March 29 50
Arizona April 20 20
Arkansas April 17 30
California April 30 4
Colorado April 23 15
Connecticut May 8 1
Delaware April 14 37
Florida April 26 9
Georgia April 19 23
Hawaii April 26 10
Idaho April 20 19
Illinois April 23 16
Indiana April 17 29
Iowa April 16 34
Kansas April 18 26
Kentucky April 10 45
Louisiana April 13 38
Maine April 20 22
Maryland April 28 7
Massachusetts April 28 6
Michigan April 16 31
Minnesota April 27 8
Mississippi April 7 49
Missouri April 14 36
Montana April 8 48
Nebraska April 19 25
Nevada April 26 11
New Hampshire April 15 35
New Jersey May 7 2
New Mexico April 12 42
New York May 5 3
North Carolina April 17 27
North Dakota April 12 39
Ohio April 17 28
Oklahoma April 11 43
Oregon April 16 32
Pennsylvania April 21 18
Rhode Island April 24 13
South Carolina April 16 33
South Dakota April 12 41
Tennessee April 11 44
Texas April 12 40
Utah April 21 17
Vermont April 19 24
Virginia April 25 12
Washington April 29 5
West Virginia April 8 47
Wisconsin April 24 14
Wyoming April 20 21
District of Columbia May 3
Source: Tax Foundation

Click here to read the full study.

Click here to view every state’s Tax Freedom Day and rank from 1970 to 2007.