2004 Tax Freedom Day Earliest Since 1967
According to calculations by the Washington, DC-based Tax Foundation, Tax Freedom Day in 2004 was celebrated on April 11, the earliest in 37 years. This year, Tax Freedom Day came three days earlier than in 2003 (April 14) and an amazing 21 days earlier than in 2000, when tax burdens were at record highs and Tax Freedom Day did not arrive until May 2. (See Figure 1.)
Tax Freedom Day marks the day when Americans will 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, and every payment to the government that is officially considered a tax is counted. Taxes at all levels of government--federal, state, and local--are included.
The Tax Foundation's Tax Freedom Day calculations give Americans an easy way to gauge the overall tax take, a task that can be quite daunting due to the multiplicity of taxes at each level of government, especially the "hidden" taxes and fees 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.
"Federal tax cuts have made the average American tax burden lighter in 2004," said Tax Foundation President Scott Hodge. "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."
In Tax Foundation Special Report No. 129, "America Celebrates Tax Freedom Day," Hodge and Senior Economist Scott Moody trace the course of America's tax burden since 1900. They examine the composition of today's tax burden by type of tax, project the future course of Tax Freedom Day, and compare tax payments to other consumer expenditures.
The Future of Tax Freedom Day
Tax legislation being debated this year will affect the course of future Tax Freedom Days. "The President 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," notes Hodge.
"Senator Kerry also speaks out in favor of those tax cuts but promises repeal of tax cuts for higher-income taxpayers," Hodge adds. According to the Tax Foundation, if current law prevails, the tax burden will start growing again, and next year Tax Freedom Day will fall later in April. (See Figure 2.)
Taxes and Other Expenses
Hodge and Moody also compare the number of days Americans work to pay taxes to the number of days they work to support themselves. "Despite the dramatically lower tax burden in 2004, Americans will still spend more on taxes than they spend on food, clothing, and medical care combined," said Hodge.
In 2004, Americans will work 65 days to pay their federal taxes and 36 more days to pay state and local taxes. Other categories of spending that require many days of labor are housing and household operation (66 days), health and medical care (51 days), food (31 days), transportation (31 days), recreation (22 days), clothing and accessories (14 days), saving (5 days) and all other (44 days). (See Figure 3.)
Tax Freedom by Type of Tax
As most taxpayers are aware, income taxes are the type of tax we work longest to pay--a total of 36 days, with 28 of those days worked for Uncle Sam and 8 more days to pay off state and local income taxes. Social insurance taxes, which along with income taxes are deducted directly from most people's paychecks, require 28 days' worth of work. Sales and excise taxes require 16 days of work, property taxes 11 days, and business taxes 9 days. (See Figure 4.)
Tax Freedom Day by State
Tax burdens vary considerably from state to state, not only because of different state and local taxes, but because of divergent federal tax payments. Therefore, the report includes a separate calculation of Tax Freedom Day for each state.
The five states with the heaviest tax burdens, whose taxpayers therefore wait the longest for Tax Freedom Day, are all in the northeast: Connecticut (April 28), New York (April 27), New Jersey (April 19), Massachusetts (April 18), and Rhode Island (April 16). Because the cost of living and salaries are higher in these states, taxpayers must work longer to pay their disproportionate share of progressive federal income taxes. The next five most-taxed states in 2004 are Maine (April 15), Washington (April 15), Wyoming (April 14), Nevada (April 13), and California (April 13).
The five states with the lightest total tax burdens celebrate Tax Freedom Day the earliest. March 26 is the earliest of all. That's when Alaskans celebrated. Alabama, Tennessee, and South Carolina have the second, third, and fourth lightest total tax burdens, and they were all done working for government on April 1. Oklahoma, Mississippi, Louisiana, and South Dakota all celebrated Tax Freedom Day on April 2, while North Dakota and Iowa celebrated April 3. (See Table 1, columns 5 and 6, for this year's data.)
Comparing State/Local Tax Burdens
To facilitate comparisons, 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 10.0 percent of residents' income, with the highest being New York's 12.9 percent and the lowest being Alaska's 6.3 percent.
For historical comparison, in April the Tax Foundation posted to its Web site new estimates of combined state-local tax burdens over 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.
Bill Ahern is director of communications for the Tax Foundation. His email address is firstname.lastname@example.org.