Monthly Newsletter

'Tax Freedom Day' for US taxpayers will fall on April 23rd this year, according to the Tax Foundation’s annual calculation, using the latest government data on income and taxes.

The study, entitled 'Tax Foundation Special Report No. 160 - America Celebrates Tax Freedom Day,' by Tax Foundation senior economist Gerald Prante and Tax Foundation president Scott Hodge, calculated that Tax Freedom Day will come three days earlier in 2008 than it did last year because of the economic stimulus tax rebates and a projected slowdown in the US economy.

The study also compared tax payments to other major consumer expenditures, and the report's authors concluded that Americans will still spend more on taxes in 2008 than they will spend on food, clothing and housing combined.

“Government continues to dominate the American taxpayer’s budget,” observed Hodge.

According to the report, in 2008, Americans will work 74 days to afford their federal taxes and 39 more days to pay state and local taxes.

Meanwhile, buying food requires 35 days of work, clothing 13 days, and housing 60 days. Other major categories are health and medical care (50 days), transportation (29 days), and recreation (21 days).

While President Bush is likely to look back on his two terms as ones in which the tax burden was substantially cut for individual taxpayers, the Tax Foundation's study shows that the Bush era has witnessed substantial fluctuations in the date on which Tax Freedom Day has fallen.

“Tax freedom has been a see-saw affair in recent years,” noted Prante.

“In 2000, Tax Freedom Day was celebrated 3 May, the latest date ever. Then a string of tax cuts between 2001 and 2003 pushed Tax Freedom Day up by more than two weeks, so that it fell on 16 April in 2003 and 17 April in 2004."

"For the next three years, incomes and tax collections soared, pushing Tax Freedom Day back to 26 April in 2007. Now the stimulus rebates and a projected slowing of income growth have made Tax Freedom Day come three days earlier, on 23 April.”

The study showed that five major categories of tax dominate the tax burden. Individual income taxes, both federal and state, require 42 days’ work. Payroll taxes take another 28 days’ work. Sales and excise taxes, mostly state and local, take 16 days to pay off. Corporate income taxes take 13 days, and property taxes take 12.

Tax Freedom Day also varies considerably by state. Alaskans will kick off the celebration of Tax Freedom Day on March 29th, more than a week before any other state’s taxpayers. Mississippi (April 7th), Montana and West Virginia ( April 8th), and Alabama (April 9th) round out the first five.

The report went on to explain that Tax Freedom Day is early in low-income states because the federal income tax hits most of their federal income taxes at the lower rates, 10% and 15%. However, Alaska stands out as an exception because its income and federal tax payments are above average, but state-local taxes are extraordinarily low.

Three states will have to wait until May to celebrate their state-specific Tax Freedom Days: Connecticut, New Jersey and New York. Although they have high state-local taxes too, the main culprit is the progressive federal income tax.

States with large metropolitan areas offer higher-paying jobs, and as a result, many of the citizens earn enough to pay income tax at the highest rates - currently 25%, 28%, 33% and 35%. If those rates rise, as they are scheduled to do in 2011, these states will bear the brunt.

Other states where citizens wait unusually long periods for Tax Freedom Day are California (April 30th), Washington (April 29th), Massachusetts (April 28th), Maryland (April 28th), Minnesota (April 27th), and Florida and Hawaii on April 26th.

The Tax Foundation calculates when Tax Freedom Day will fall in any given year by dividing official government figures for total tax collections by the nation’s total income. This year, taxes will amount to 30.8% of total income, and the stretch of 113 days from January 1st to April 23rd is 30.8% of the year. Income and tax data are then parsed out to the states, yielding 50 state-specific Tax Freedom Days.