Tax Freedom Day 2010 Is April 9; Historically Massive Deficits Promise Later Tax Freedom in the Future
March 30, 2010
Tax Freedom Day—the day on which Americans have earned enough money to pay all federal, state, and local taxes for the year—will arrive on April 9 this year, the 99th day of 2010. Americans will work well over three months of the year before they have earned enough money to pay the nation's tax bill for the year, and they will pay more taxes in 2010 than they will spend on food, clothing and shelter combined.
This year's Tax Freedom Day is one day later than in 2009, but more than two weeks earlier than in 2007. The shift toward a lower tax burden since 2007 has been driven by three factors:
(1) The recession has reduced tax collections even faster than it has reduced income.
(2) President Obama and the Congress have enacted large but temporary income tax cuts for 2009 and 2010, just as President Bush did in 2008.
(3) Two significant taxes were repealed for 2010 as part of previous legislation, the estate tax and the so-called PEP and Pease provisions of the income tax.
The shift toward an earlier Tax Freedom Day since 2007 is not necessarily cause for celebration. That's because Tax Freedom Day does not count the deficit even though deficits must eventually be financed. Since 1948, when Tax Freedom Day was first calculated, the difference between what governments are spending and what they're collecting has never been as great as during 2009 and 2010. If Americans were required to pay for all government spending this year, including the $1.3 trillion federal budget deficit, they would be working until May 17 before they had earned enough to pay their taxes—an additional 38 days of work.
This May 17 date for a deficit-inclusive measure is the second latest since World War II. Only in 2009 was it later, when an unprecedented budget deficit of close to $1.5 trillion produced a deficit-inclusive date of May 21, fully 43 days later than Tax Freedom Day. The graph below shows how Tax Freedom Day changes when we account for the deficit.
In addition to a national Tax Freedom Day, we've calculated one for each state. In the coming weeks, we'll be writing more about specific states' Tax Freedom Days.