Nation Works until 11:13 AM to Pay All Taxes, Lunchtime to Pay off the Deficit: 2011’s Tax Bite in the Eight-Hour Day
Putting the Cost of Government on the Clock: 2011's Tax Bite in the Eight-Hour Day®
Tax Foundation Fiscal Fact No. 268
In 2011, Americans will devote 2 hours and 13 minutes of every eight-hour workday, or over a quarter of their working hours (27.7%), to paying taxes. In a nine-to-five workday, it takes until 11:13 a.m. to earn enough to pay that day's share of taxes at the federal, state and local level.
If we add the federal deficit to the picture—that is, if the federal government were planning to collect enough in taxes during 2011 to finance all of its spending—Americans would work until lunchtime, 12:07 p.m., for the government, before keeping any of their earnings for themselves.
The Tax Bite in the Eight-Hour Day, which measures the nation's tax burden in hours and minutes, is an offshoot of the Tax Foundation's annual Tax Freedom Day® calculation, which measures the tax burden in months, weeks, and days. These calendar- and clock-based illustrations are a useful way to explain how much the nation as a whole spends on government. Both Tax Freedom Day and the Tax Bite in the Eight-Hour Day illustrate, in similar ways, what portion of their income Americans keep for themselves and what percentage they spend on government.
How Long Do Americans Work for Each Type of Tax?
Figure 1 shows how long the nation must work in the average workday to earn enough to pay each type of tax:
- Individual income taxes require the most work. All but seven states, and some localities, levy an income tax. When these are added to the federal income tax burden, income taxes are projected to amount to an average of 46 minutes of work in an eight-hour workday.
- Social insurance taxes (taxes dedicated to funding social insurance programs such as Social Security and Medicare) require 29 minutes of work.
- Sales and excise taxes require 20 minutes of work.
- Property taxes require 16 minutes of work.
- Corporate income taxes require 16 minutes of work.
Figure 1: How Much of Each Eight-Hour Workday Goes to Paying the Nation's Tax Bills in 2011?
Tax Bite in the Eight-Hour Day Varies by State
The tax burdens borne by residents of different states vary considerably, not only because residents of different states pay different amounts of state and local tax, but also because their federal tax payments vary dramatically. Higher-income states face a significantly higher total federal tax rate than lower-income states, even before accounting for the fact that many high-income states also have high state and local tax burdens.
Table 1: Tax Bite in the Eight-Hour Day by State, 2011
|State||Tax Bite in the Eight-Hour Day||Rank (1 is highest tax burden)|
|New Hampshire||11:09 a.m.||22|
|New Jersey||11:36 a.m.||2|
|New Mexico||10:58 a.m.||45|
|New York||11:30 a.m.||3|
|North Carolina||11:06 a.m.||27|
|North Dakota||11:12 a.m.||17|
|Rhode Island||11:15 a.m.||13|
|South Carolina||10:55 a.m.||48|
|South Dakota||10:57 a.m.||46|
|West Virginia||10:58 a.m.||44|
|District of Columbia||11:18 a.m.|
In 2011, as Table 1 shows, residents of Mississippi will finish working for taxes the earliest, at 10:51 a.m., due to their modest incomes and extremely low state and local tax burden. Next are Tennessee (10:53), South Carolina (10:55), Louisiana (10:57), and South Dakota (10:57). States whose residents work the longest for taxes are Connecticut (11:40), New Jersey (11:36), New York (11:30), and Maryland (11:20).
To calculate the Tax Bite for each state, we look at taxes borne by residents of that state, whether paid to the federal government, their own state or local government, or governments of other states. Where possible, we allocate tax burdens to the taxpayer's state of residence. For example, Massachusetts income tax levied on the wages of New Hampshire residents is allocated to New Hampshire, not Massachusetts.
To Pay off the Deficit, Americans Would Have to Work until Lunchtime Every Day
Tax Freedom Day and the Tax Bite in the Eight-Hour Day, like almost all tax burden measures, ignore the federal budget deficit, taking into account only taxes that will actually be collected during 2011. In many years, the deficit is fairly small as a percentage of total government spending, but since 2008, larger federal budget deficits can give the impression that the burden of government is smaller than it is. If the federal government were planning to collect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Americans would not finish working for the government until lunchtime: 12:07 p.m.
Table 2: Tax Bite in the Eight-Hour Day, 1940 – 2011
|Year||Tax Burden (Taxes as a Percent of Income)||Tax Bite in the Eight-Hour Day|
Source: Tax Foundation calculations based on data from the Bureau of Economic Analysis, Congressional Budget Office, Joint Committee on Taxation, Office of Management and Budget, Internal Revenue Service, Congressional Research Service, and National Bureau of Economic Research.
Note: A longer version of this table, with data from 1900 to 2011, is available at www.taxfoundation.org/legacy/show/27257.html.
History of Tax Freedom Day and the Tax Bite in the Eight-Hour Day
Tax Freedom Day was conceived by Florida businessman Dallas Hostetler in 1948. He performed the calculation himself and promoted his copyrighted concept until his retirement in 1971. He deeded the intellectual property to the Tax Foundation, which was publishing the Tax Bite in the Eight-Hour Day at the time. Since then the Tax Foundation has used historical data to calculate both Tax Freedom Day and the Tax Bite in the Eight-Hour Day. In 1990, sufficient data became available to calculate both tax burden measures for each state.
Both Tax Freedom Day and the Tax Bite in the Eight-Hour Day measure the percentage of the nation's income that is taken in taxes. We count in the denominator every dollar that is officially part of national income according to the Department of Commerce's Bureau of Economic Analysis, and in the numerator every payment to the government that is officially considered a tax is counted. Taxes at all levels of government are included, whether levied by Uncle Sam or state and local governments.
For Tax Freedom Day, we assume that the nation starts working on January 1, earning the same amount each day and spending nothing. When the nation has finally earned enough to pay all the taxes that will be due for that year, Tax Freedom Day has arrived. Similarly, to calculate the Tax Bite in the Eight-Hour Day, we assume the nation works from 9:00 a.m. until 5:00 p.m., devoting all income to taxes until that day's portion of the tax bill is paid.
Determining both measures involves calculating an overall average tax rate for the country. This is done by dividing the nation's total tax payments by the nation's income as projected by the Tax Foundation for 2011. The following formula presents this calculation:
Federal, state & local taxes = $3,628 billion = 27.68%
Total income = $13,107 billion
We then convert the average tax rate into hours and minutes to arrive at the Tax Bite in the Eight-Hour Day:
27.68% x 480 minutes (number of minutes in eight hours) = 133 minutes = 11:13 a.m.
The source for income and tax data is the National Income and Product Accounts published by the Bureau of Economic Analysis in the Department of Commerce. For a more detailed description of Tax Freedom Day's methodology, which also applies to the Tax Bite in the Eight-Hour Day, see the full Tax Freedom Day Special Report (www.taxfoundation.org/files/sr190.pdf) and "Tax Freedom Day: A Description of Its Calculation and Answers to Some Methodological Questions" (www.taxfoundation.org/legacy/show/23039.html).