March 26, 2008

Tax Freedom Day: A Description of Its Calculation and Answers to Some Methodological Questions

Download Working Paper No. 3

Working Paper No. 3


Tax Freedom Day is calculated by taking taxes paid in the current year divided by the nation’s income for that year, which is derived from BEA statistics, and then projected by Tax Foundation economists using economic and budget projections from various sources, most notably the Congressional Budget Office (CBO). This paper contains an overview of the methodology that goes into calculating the nation’s Tax Freedom Day.

This paper also addresses some methodological concerns, including those that have been made in the past, and some still to this day, by the Center on Budget and Policy Priorities (CBPP). Each year, the CBPP releases a criticism of the Tax Foundation’s annual calculation of Tax Freedom Day. Their criticisms of Tax Freedom Day have varied over the years but typically center on essentially one main criticism. They object to Tax Freedom Day to describe the tax burden of the nation as a whole, because it may over- or understate the tax burden faced by particular taxpayers.

A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The Congressional Budget Office (CBO) provides nonpartisan analysis to the U.S. Congress on federal economic and budgetary matters.