Tax Freedom Day
Encyclopedia
Tax Freedom Day is the first day of the year in which a nation
as a whole has theoretically earned enough income to fund its annual tax burden. It is annually calculated in the United States by the Tax Foundation
—a Washington, D.C.
-based tax research organization. Every dollar that is officially considered 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—local, state and federal—are included.
The concept of Tax Freedom Day was developed in 1948 by Florida businessman Dallas Hostetler, who trademarked the phrase "Tax Freedom Day" and calculated it each year for the next two decades. In 1971, Hostetler retired and transferred the trademark to the Tax Foundation
. The Tax Foundation has calculated Tax Freedom Day for the United States ever since, using it as a tool for illustrating the proportion of national income diverted to fund the annual cost of government
programs. In 1990, the Tax Foundation began calculating the specific Tax Freedom Day for each individual state.
, Tax Freedom Day for 2010 is April 3, for a total average effective tax rate of 26.9 percent of the nation's income. The latest that Tax Freedom Day has occurred was May 1 in 2000. In 1900, Tax Freedom Day arrived January 22, for an effective average total tax rate of 5.9 percent of the nation's income. According to the Tax Foundation, the most important factor driving changes in Tax Freedom Day from year to year is growth in incomes, as the progressive structure of the U.S. federal tax system causes taxes as a percentage of income to rise along with inflation.
Tax Freedom Day varies among the 50 U.S. states, as incomes and state & local taxes differ from state to state. In 2010, Alaska
had the lowest total tax burden, earning enough to pay all their tax obligations by March 26. Connecticut
had the heaviest tax burden—Tax Freedom Day there arrived April 27. New Jersey
had the second heaviest tax burden, having to work until April 25 to pay their total taxes.
According to the Tax Foundation, the following is a list of Tax Freedom Days in the U.S. since 1900:
Regarding the discrepancy between their calculation of August 3 as the typical Belgian worker's Tax Freedom Day and that of PriceWaterhouseCoopers (PWC), L'Anglophone's authors wrote: "[PWC's] figures count revenue from all taxes (including those on corporate profits, petrol, cigarettes, &c.) and thus present a more complete picture of the country’s total tax burden," adding that it is "an average applied to all Belgians – not all Belgian workers; in 2008, less than half of Belgium’s population (4.99 million working out of 10.67 million citizens) was legally working. Consequently, a huge share of Belgium’s tax burden is borne by the working population."
s have one day more, 29 February. This creates some bias in Tax Freedom Days charts. However, this bias is equal to roughly 1/366, which is about 0.27%.
criticizes the idea that tax-paying is inherently different from consumption:
also includes a “Personal Tax Freedom Day Calculator” that estimates a customized Tax Freedom Day based on additional variables such as age of household head, sex of household head, marital status and number of children. However, the Fraser Institute's figures have been disputed. For example, a 2002 study by Osgoode Hall
Law Professor Neil Brooks argues the Fraser Institute's Tax Freedom Day analysis includes flawed accounting, including the exclusion of several important forms of income and overstating tax figures, moving the date nearly two months later.
In America, while Tax Freedom Day presents an "average American" tax burden, it is not a tax burden typical for an American. That is, the tax burdens of most Americans are substantially overstated by Tax Freedom Day. The larger tax bills associated with higher incomes increases the average tax burden above that of most Americans.
Another criticism is that the calculation includes capital gains taxes but not capital gains income, thus overstating the tax burden. For example, in the late 1990s the US Tax Freedom Day moved later, reaching its latest date ever in 2000, but this was largely due to capital gains taxes on the bull market of that era rather than an increase in tax rates. In other words, variations in capital gains income and their associated taxes cause changes in the amount of taxes, but not in the income used in the calculation of Tax Freedom Day.
The Tax Foundation
defends its methodology by pointing out that Tax Freedom Day is the U.S. economy's overall average tax burden—not the tax burden of the "average" American, which is how it is often misinterpreted by members of the media.http://www.taxfoundation.org/news/show/1406.html Tax Foundation materials do not use the phrase "tax burden of the average American", although members of the media often make this mistake.
Secondly, the Tax Foundation argues that the Tax Freedom Day calculation does not include capital gains as income because it uses income and tax data directly from the Bureau of Economic Analysis
(BEA). BEA has never counted capital gains as income since they don't represent current production available to pay taxes, and so the Tax Foundation excludes them as well. Additionally, the Tax Foundation argues that the exclusion of capital gains income is irrelevant in most years since including capital gains would only shift Tax Freedom Day by 1 percent in either direction in most years.http://www.taxfoundation.org/news/show/1406.html A 1 percent change would represent 3.65 days. From 1968 to 2009 the date has never left the 21-day range of April 13 to May 3.
Nation
A nation may refer to a community of people who share a common language, culture, ethnicity, descent, and/or history. In this definition, a nation has no physical borders. However, it can also refer to people who share a common territory and government irrespective of their ethnic make-up...
as a whole has theoretically earned enough income to fund its annual tax burden. It is annually calculated in the United States by the Tax Foundation
Tax Foundation
The Tax Foundation is a Washington, D.C.-based think tank founded in 1937 that collects data and publishes research studies on tax policies at the federal and state levels. The organization is broken into three primary areas of research which are the Center for Federal Fiscal Policy, The and the...
—a Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
-based tax research organization. Every dollar that is officially considered 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—local, state and federal—are included.
The concept of Tax Freedom Day was developed in 1948 by Florida businessman Dallas Hostetler, who trademarked the phrase "Tax Freedom Day" and calculated it each year for the next two decades. In 1971, Hostetler retired and transferred the trademark to the Tax Foundation
Tax Foundation
The Tax Foundation is a Washington, D.C.-based think tank founded in 1937 that collects data and publishes research studies on tax policies at the federal and state levels. The organization is broken into three primary areas of research which are the Center for Federal Fiscal Policy, The and the...
. The Tax Foundation has calculated Tax Freedom Day for the United States ever since, using it as a tool for illustrating the proportion of national income diverted to fund the annual cost of government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
programs. In 1990, the Tax Foundation began calculating the specific Tax Freedom Day for each individual state.
United States
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Tax Freedom Day for 2010 is April 3, for a total average effective tax rate of 26.9 percent of the nation's income. The latest that Tax Freedom Day has occurred was May 1 in 2000. In 1900, Tax Freedom Day arrived January 22, for an effective average total tax rate of 5.9 percent of the nation's income. According to the Tax Foundation, the most important factor driving changes in Tax Freedom Day from year to year is growth in incomes, as the progressive structure of the U.S. federal tax system causes taxes as a percentage of income to rise along with inflation.
Tax Freedom Day varies among the 50 U.S. states, as incomes and state & local taxes differ from state to state. In 2010, Alaska
Alaska
Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...
had the lowest total tax burden, earning enough to pay all their tax obligations by March 26. Connecticut
Connecticut
Connecticut is a state in the New England region of the northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, and the state of New York to the west and the south .Connecticut is named for the Connecticut River, the major U.S. river that approximately...
had the heaviest tax burden—Tax Freedom Day there arrived April 27. New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
had the second heaviest tax burden, having to work until April 25 to pay their total taxes.
According to the Tax Foundation, the following is a list of Tax Freedom Days in the U.S. since 1900:
| Year | TFD | Percentage tax burden |
|---|---|---|
| 1900 | January 22 | 5.9% |
| 1910 | January 19 | 5.0% |
| 1920 | February 13 | 12.0% |
| 1930 | February 12 | 11.7% |
| 1940 | March 7 | 17.9% |
| 1950 | March 31 | 24.6% |
| 1960 | April 11 | 27.7% |
| 1970 | April 19 | 29.6% |
| 1980 | April 21 | 30.4% |
| 1990 | April 21 | 30.4% |
| 2000 | May 1 | 33.0% |
| 2001 | April 27 | 31.8% |
| 2002 | April 17 | 29.2% |
| 2003 | April 14 | 28.4% |
| 2004 | April 15 | 28.5% |
| 2005 | April 21 | 30.2% |
| 2006 | April 24 | 31.2% |
| 2007 | April 24 | 31.1% |
| 2008 | April 16 | 29.0% |
| 2009 | April 8 | 26.6% |
| 2010 | April 9 | 26.9% |
| 2011 | April 12 | 28.0% |
Tax Freedom Day around the world
Many other organizations in countries throughout the world now produce their own "Tax Freedom Day" analysis. According to the Tax Foundation, Tax Freedom Day reports are currently being published in eight countries. Due to the different ways that nations collect and categorize public finance data, however, Tax Freedom Days are not comparable from one country to another.| Country | Day of year | % burden | |Date of year | Updated | |Source | |Reference |
|---|---|---|---|---|---|---|
| India | 74 | 20% | 14 March | 2000 | Centre for Civil Society Centre for Civil Society The Centre for Civil Society is a Indian think tank and an independent, non-profit, research and educational organisation, established in 1997 and working towards improving the quality of life for all citizens of India by reviving and reinvigorating civil society.In 2004, CSS was awarded the... |
http://www.ccsindia.org/index.asp |
| United States | 99 | 26.9% | 9 April | 2010 | Tax Foundation Tax Foundation The Tax Foundation is a Washington, D.C.-based think tank founded in 1937 that collects data and publishes research studies on tax policies at the federal and state levels. The organization is broken into three primary areas of research which are the Center for Federal Fiscal Policy, The and the... |
http://www.taxfoundation.org/taxfreedomday/ |
| Australia | 112 | 30.7% | 22 April | 2008 | Centre for Independent Studies Centre for Independent Studies The Centre for Independent Studies is a libertarian think tank founded in April 1976 by Executive Director Greg Lindsay. The CIS is one of six think tanks recognised by the National Institute for Research Advancement in Tokyo, Japan... |
http://www.cis.org.au/media/releases/22%20April%2008%20(Tax%20Freedom%20Day).doc |
| Estonia | 114 | 31.1% | 24 April | 2007 | Eesti Maksumaksjate Liit (Estonian Taxpayers Association) | http://www.maksumaksjad.ee/modules/news/article.php?storyid=651/ |
| South Africa | 132 | 36% | 12 May | 2008 | Free Market Foundation | http://www.freemarketfoundation.com/ |
| Uruguay | 133 | 38.6% | 13 May | 2010 | CPA Ferrere | http://www.cpa.com.uy/ |
| Hungary | 140 | 38%* | 20 May | 2008 | Hungarian Central Statistic Institute | http://www.hirado.hu/cikk.php?id=280186 |
| New Zealand | 141 | 39% | 21 May | 2008 | Staples Rodway | http://www.stuff.co.nz/4553741a13.html |
| Spain | 119 | 33% | 29 April | 2010 | Think Tank Civismo | http://www.civismo.org |
| Slovakia | 142 | 38.8% | 3 June | 2011 | Nadácia F.A.Hayeka | http://www.hayek.sk/ |
| Lithuania | 124 | 34.0% | 5 May | 2011 | Lithuanian Free Market Institute | http://www.freema.org/ |
| Bulgaria | 147 | 40% | 27 May | 2009 | Novinite | http://www.novinite.com/view_news.php?id=104017 |
| Brazil | 147 | 40% | 27 May | 2008 | Instituto Brasileiro de Planejamento Tributario | http://www.ibpt.com.br/ |
| United Kingdom | 150 | 40.9% | 30 May | 2010 | Adam Smith Institute Adam Smith Institute The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,... |
http://www.adamsmith.org/tax-freedom-day/ |
| Canada | 157 | 42.6% | 6 June | 2009 | Fraser Institute Fraser Institute The Fraser Institute is a Canadian think tank. It has been described as politically conservative and right-wing libertarian and espouses free market principles... May 2, 2010 |
http://www.fraserinstitute.ca |
| Belgium | 161 | 43.8% | 10 June | 2011 | PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms.... |
http://www.pwc.com/be/en/publications/2011-tax-freedom-day.jhtml |
| Croatia | 161 | 43.7% | 10 June | 2010 | Adriatic Institute for Public Policy Adriatic Institute for Public Policy The Adriatic Institute for Public Policy is an independent free market think tank founded in 2004 in Rijeka, Croatia. It is dedicated to advancing personal and economic freedoms, democracy and the rule of law in Croatia and other post-Communist countries in Southeastern Europe.AI organizes:* the... |
http://adriaticinstitute.org/?action=news&id=86 |
| Czech Republic | 161 | 44.1% | 11 June | 2007 | Liberální institut | http://www.libinst.cz/english/index.php |
| Israel | 173 | 47.4% | 22 June | 2010 | Jerusalem Institute for Market Studies Jerusalem Institute for Market Studies The Jerusalem Institute for Market Studies is an independent, nonprofit economic policy think tank whose mission is to promote social progress in Israel through economic freedom and individual liberty.... |
http://www.jims-israel.org/taxfreedomday2010.aspx |
| Poland | 175 | 48.0% | 24 June | 2011 | Centrum im. Adama Smitha Centrum im. Adama Smitha Adam Smith Center is a think-tank based in Poland. It was founded in 1989 based on an earlier group of anti-communist opposition and named after Adam Smith and similar eponymous institute based in the United Kingdom. Among its members are roughly 50 economists, political scientists and sociologists... |
http://www.smith.org.pl |
| Slovenia | 176 | 48.3% | 25 June | 2011 | Business daily Finance | http://www.finance.si/ |
| Germany | 190 | 51.7% | 8 July | 2008 | Bund der Steuerzahler | http://www.steuerzahlerbund.de/webcom/show_article.php/_c-42/_nr-141/i.html |
| France | 197 | 53.6% | 16 July | 2007 | Contribuables associés | http://www.contribuables.org/wp-content/uploads/2007/07/libe_fiscale_2007web.pdf |
| Sweden | 200 | 55% | 20 July | 2010 | Swedish Taxpayers' Association Swedish Taxpayers' Association The Swedish Taxpayers' Association is an association and taxpayers union in Sweden which advocates low taxes and efficiency in the public sector... |
https://www.skattebetalarna.se/ |
| Norway | 210 | 56.7% | 29 July | 2007 | Skattebetalerforeningen | http://www.skattebetalerforeningen.no |
Tax Freedom Day for workers in the European Union
A 2010 study published in L'Anglophone, a Brussels newspaper, compared the tax burdens of "Average Joes" in each of the 27 EU member states and projected the Tax Freedom Day for workers earning a typical wage. Income taxes, social security contributions (by the employee and the employer) and projected VAT contributions were included in the calculations.Regarding the discrepancy between their calculation of August 3 as the typical Belgian worker's Tax Freedom Day and that of PriceWaterhouseCoopers (PWC), L'Anglophone's authors wrote: "[PWC's] figures count revenue from all taxes (including those on corporate profits, petrol, cigarettes, &c.) and thus present a more complete picture of the country’s total tax burden," adding that it is "an average applied to all Belgians – not all Belgian workers; in 2008, less than half of Belgium’s population (4.99 million working out of 10.67 million citizens) was legally working. Consequently, a huge share of Belgium’s tax burden is borne by the working population."
| Country | Day of year | % burden | |Date of year |
|---|---|---|---|
| Austria | 191 | 52.2% | 10 July |
| Belgium | 215 | 58.5% | 3 August |
| Bulgaria | 145 | 39.5% | 25 May |
| Cyprus | 72 | 19.4% | 13 March |
| Czech Rep. | 165 | 44.9% | 14 June |
| Denmark | 168 | 45.7% | 17 June |
| Estonia | 150 | 40.7% | 30 May |
| Finland | 166 | 45.2% | 15 June |
| France | 207 | 56.4% | 26 July |
| Germany | 200 | 54.6% | 19 July |
| Greece | 164 | 44.6% | 13 June |
| Hungary | 218 | 59.4% | 6 August |
| Ireland | 117 | 31.9% | 27 April |
| Italy | 169 | 46.0% | 18 June |
| Latvia | 161 | 43.7% | 10 June |
| Lithuania | 167 | 45.4% | 16 June |
| Luxembourg | 135 | 36.8% | 15 May |
| Malta | 99 | 26.8% | 9 April |
| Netherlands | 184 | 50.2% | 03 Jul |
| Poland | 160 | 43.6% | 9 June |
| Portugal | 150 | 40.9% | 30 May |
| Romania | 178 | 48.6% | 27 June |
| Slovakia | 167 | 45.5% | 16 June |
| Slovenia | 164 | 44.7% | 13 June |
| Spain | 136 | 37.0% | 16 May |
| Sweden | 181 | 49.4% | 30 June |
| United Kingdom | 134 | 36.3% | 13 May |
Leap year effects
Since most of the years are not divisible by 4, Leap yearLeap year
A leap year is a year containing one extra day in order to keep the calendar year synchronized with the astronomical or seasonal year...
s have one day more, 29 February. This creates some bias in Tax Freedom Days charts. However, this bias is equal to roughly 1/366, which is about 0.27%.
Purpose
According to Neil Veldhuis, Director of Fiscal Studies, Fraser Institute, the purpose of Tax Freedom Day is to provide citizens of tax-paying countries with a metric with which to estimate their "total tax bill". The premise is that by comparing the benefits received by citizens to the amount they pay in taxes, the value of paying taxes can be assessed.Criticism
In the book Filthy Lucre, Joseph HeathJoseph Heath
Joseph Heath is a philosophy professor at the University of Toronto. He also teaches at the School of Public Policy and Governance. He received his BA from McGill University, where his teachers included Charles Taylor, and his MA and PhD degrees are from Northwestern University, where he studied...
criticizes the idea that tax-paying is inherently different from consumption:
It would make just as much sense to declare an annual " freedom day", in order to let mortgage owners know what day they "stop working for the bank and start working for themselves". ...But who cares? Homeowners are not really "working for the bank"; they're merely financing their own consumption. After all, they're the ones living in the house, not the bank manager.
Mathematical
For Canada the Fraser InstituteFraser Institute
The Fraser Institute is a Canadian think tank. It has been described as politically conservative and right-wing libertarian and espouses free market principles...
also includes a “Personal Tax Freedom Day Calculator” that estimates a customized Tax Freedom Day based on additional variables such as age of household head, sex of household head, marital status and number of children. However, the Fraser Institute's figures have been disputed. For example, a 2002 study by Osgoode Hall
Osgoode Hall
Osgoode Hall is a landmark building in downtown Toronto constructed between 1829 and 1832 in the late Georgian Palladian and Neoclassical styles. It houses the Ontario Court of Appeal, the Divisional Court of the Superior Court of Justice, and the Law Society of Upper Canada...
Law Professor Neil Brooks argues the Fraser Institute's Tax Freedom Day analysis includes flawed accounting, including the exclusion of several important forms of income and overstating tax figures, moving the date nearly two months later.
In America, while Tax Freedom Day presents an "average American" tax burden, it is not a tax burden typical for an American. That is, the tax burdens of most Americans are substantially overstated by Tax Freedom Day. The larger tax bills associated with higher incomes increases the average tax burden above that of most Americans.
Another criticism is that the calculation includes capital gains taxes but not capital gains income, thus overstating the tax burden. For example, in the late 1990s the US Tax Freedom Day moved later, reaching its latest date ever in 2000, but this was largely due to capital gains taxes on the bull market of that era rather than an increase in tax rates. In other words, variations in capital gains income and their associated taxes cause changes in the amount of taxes, but not in the income used in the calculation of Tax Freedom Day.
The Tax Foundation
Tax Foundation
The Tax Foundation is a Washington, D.C.-based think tank founded in 1937 that collects data and publishes research studies on tax policies at the federal and state levels. The organization is broken into three primary areas of research which are the Center for Federal Fiscal Policy, The and the...
defends its methodology by pointing out that Tax Freedom Day is the U.S. economy's overall average tax burden—not the tax burden of the "average" American, which is how it is often misinterpreted by members of the media.http://www.taxfoundation.org/news/show/1406.html Tax Foundation materials do not use the phrase "tax burden of the average American", although members of the media often make this mistake.
Secondly, the Tax Foundation argues that the Tax Freedom Day calculation does not include capital gains as income because it uses income and tax data directly from the Bureau of Economic Analysis
Bureau of Economic Analysis
The Bureau of Economic Analysis is an agency in the United States Department of Commerce that provides important economic statistics including the gross domestic product of the United States. Its stated mission is to "promote a better understanding of the U.S...
(BEA). BEA has never counted capital gains as income since they don't represent current production available to pay taxes, and so the Tax Foundation excludes them as well. Additionally, the Tax Foundation argues that the exclusion of capital gains income is irrelevant in most years since including capital gains would only shift Tax Freedom Day by 1 percent in either direction in most years.http://www.taxfoundation.org/news/show/1406.html A 1 percent change would represent 3.65 days. From 1968 to 2009 the date has never left the 21-day range of April 13 to May 3.
External links
- Tax Foundation's Tax Freedom Day
- Tax Freedom Day Clock A live clock that counts the days till/since Tax Freedom Day
- Tax Freedom Day (UK) calculated by the Adam Smith Institute
- Tax Freedom Day Clock (UK) A live clock that counts the days till/since UK Tax Freedom Day
- Criticism: Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens