Tax Freedom Day, the day working Americans pay off their federal and state taxes, will be celebrated Sunday, the earliest such day in 37 years, the Tax Foundation says.
April 11 is three days earlier than 2003’s Tax Freedom Day and 21 days earlier than in 2000, when the economy’s boom and bubble pushed tax burdens to a record high, and Tax Freedom Day did not arrive until May 2. In North Carolina, Tax Freedom Day came a few days earlier, on April 6.
“Federal tax cuts have made the average American tax burden lighter in 2004,” Tax Foundation President Scott Hodge said. “Because the bubble in 1999 and 2000 boosted tax collections to artificially high levels, the drop since then is all the more dramatic. In fact, it is the biggest drop in America’s tax burden for at least a century.”
The report is Tax Foundation Special Report No. 129, “America Celebrates Tax Freedom Day,” by Hodge and Foundation Senior Economist Scott Moody. The report traces the course of America’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, projects the future course of Tax Freedom Day, and compares tax payments to other typical consumer expenditures.
Tax Freedom Day is the day when Americans will finally have earned enough money to pay off their total tax bill for the year. Every dollar that’s officially called income by the government is counted. Taxes at all levels of government are included, whether levied by Uncle Sam or state and local governments.
Tax Freedom Day gives Americans a way to gauge the overall tax take, a task that can be daunting because of the multiplicity of taxes at each level of government, especially the “hidden” taxes and fees that are often buried in the cost of living. In effect, Tax Freedom Day provides taxpayers with a tax barometer that measures the total tax burden over time and by state.
To facilitate comparisons of state and local tax burdens, the report includes a state-by-state ranking of tax burdens with federal taxes excluded. This year, the nation’s average state-local tax burden is 10 percent of residents’ income, with the highest being New York’s 12.9 percent and the lowest being Alaska’s 6.3 percent.
The foundation’s ranking places North Carolina’s tax burden at 31st in state and local tax burden. This year, Tax Freedom Day in North Carolina arrived 10 days earlier than it did in 1990, 12 days earlier than in 1995, and 18 days earlier than in 2000, thanks to Bush’s tax cuts.
On state and local taxes, only Georgia among Southeastern states, at 10 percent of personal income, had a higher burden than did North Carolina, at 9.7 percent. Alabama’s state and local tax burden was 9.1 percent, Florida was at 8.8 percent, South Carolina at 9 percent, Tennessee at 8.5 percent, and Virginia at 9.3 percent.
Tax legislation being debated in Washington, D.C. will affect the course of future Tax Freedom Days. President Bush wants to keep such popular tax cuts as the child tax credit, the 10 percent bracket, and the marriage penalty relief at their most generous levels, which they have reached in 2004, rather than let them dip as they are scheduled to do under current law.
Sen. John Kerry, D-Mass., also speaks out in favor of those tax cuts, but promises repeal of tax cuts for higher-income taxpayers.
If current law prevails, the tax burden will start growing again, and Tax Freedom Day will fall later in April.
For historical comparison, the Tax Foundation on Wednesday posted new estimates of combined state-local tax burdens on its website that cover the years 1970-2004.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state, and local levels since 1937.
Richard Wagner is the editor of Carolina Journal.