Tax Freedom Day — the date on which Americans will have worked long enough to pay this year’s tax obligations at the federal, state and local levels — fell on Saturday, April 16 for residents of California. This was the sixth latest Tax Freedom Day to arrive out of all 50 states. The average date for all Americans, as announced recently by the Tax Foundation, was Tuesday, April 12.
In the new study Tax Foundation Special Report No. 190, “Tax Freedom Day Arrives on April 12,” Tax Foundation Staff Economist Kail Padgitt, Ph.D., traces the course of America’s tax burden since 1900, examines the composition of today’s burden by type of tax, and calculates a Tax Freedom Day for each state.
“The national date for Tax Freedom Day 2011 is later than last year largely because of income changes rather than statutory tax law changes,” said Padgitt. “As the economic recovery continues, individuals’ rising income pushes them into higher tax brackets. Also, corporate tax revenue has also seen a resurgence.”
Although income increases are the main reason for the later Tax Freedom Day, several tax law changes are also partly to blame. The federal estate tax has returned after a one-year repeal, this time at a rate of 35 percent and with an exemption of $5 million. In addition, taxes associated with the Patient Protection and the Affordable Care Act continue to be phased in.
Comparison: Tax Freedom Day by State
Each state has its own Tax Freedom Day. This occurs not only because residents of different states pay different amounts of state and local taxes, but also because their federal tax payments can vary dramatically. Because of modest incomes and low state and local tax burdens, Mississippi celebrates its Tax Freedom Day first in the nation on March 26, after only 85 days. Tennessee (March 27), South Carolina (March 29), Louisiana (March 30), and South Dakota (March 30) round out the top five.
High-income states pay much more in federal taxes, and they often have higher state-local taxes as well. Connecticut is the last in the nations to observe Tax Freedom Day, on May 2, with 122 days required for state taxpayers to pay the year’s tax total. Other states with late celebrations include New Jersey (April 29), New York (April 24), Maryland (April 17) and Washington (April 16).
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 27.68 percent of our income — the same percentage of the year accounted for by the 102 days from January 1 to April 12. Income and tax data are then parsed out to the states, yielding 50 state-specific Tax Freedom Days. The source for income and tax data is the National Income and Product Accounts published by the Department of Commerce’s Bureau of Economic Analysis.
For more information, go to http://www.taxfoundation.org/taxfreedomday.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.