America Celebrates Tax Freedom DayŽ
Tax Freedom Day® will arrive on April 12 this year, the 102nd day of 2011. That means Americans will work well over three months of the year, from January 1 to April 12, before they have earned enough money to pay this year's tax obligations at the federal, state and local levels.
Tax Freedom Day arrives three day later in 2011 than it did in 2010, but nearly two weeks earlier than in 2007. This shift toward a lower tax burden since 2007 has been driven by three factors:
• The Great Recession has reduced tax collections even faster than it has reduced income.
• President Obama and the Congress, after a long debate, extended the Bush-era tax cuts for two additional years.
• As part of the extension agreement, the Making Work Pay tax credit was replaced with the 2 percent reduction in the payroll tax.
Despite these tax reductions, Americans will pay more in taxes in 2011 than they will spend on groceries, clothing and shelter combined.
The Federal Budget Deficit
Tax Freedom Day, like almost all tax burden measures, ignores the current year’s deficit. Only taxes that will actually be collected during 2011 count in the tally. In many years the deficit is fairly small as a percentage of total government spending, so Tax Freedom Day gives a good idea of the size of government. Since 2008, however, deficits have been massive by any measure, and as a result, Tax Freedom Day may give the impression that the burden of government is smaller than it is. If the federal government were planning to collect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Tax Freedom Day would arrive on May 23 instead of April 12—adding an additional 41days to the nation’s work for government.
Tax Freedom Day in Recent Years
The latest-ever Tax Freedom Day was May 1, 2000. Over a three-year period, the tech bubble had driven employment and wages higher and capital gains sky-high. In combination with the higher tax rates that had been enacted in 1993, these factors caused tax collections to soar unpredictably. The Congressional Budget Office kept raising its revenue forecasts, but each year’s revenue was so much higher than predicted that the government ended up with a surplus.
Predictably, following such a tax surge, American opposition to taxes grew, and President Bush was narrowly elected on a tax-cut platform. The new president delivered on his tax cut promises, which, combined with a recession in 2001 and stagnation in 2002 and early 2003, caused the tax burden to fall considerably. In 2003, Tax Freedom Day arrived more than two weeks earlier than it had in 2000, on April 14. At the time, it was the second-earliest Tax Freedom Day since the Johnson administration.
From 2003 through 2006, corporate income taxes rose quickly, along with rapidly growing corporate profits. Personal income tax receipts also rose sharply, starting in 2004. As a result, Tax Freedom Day was delayed, reaching April 24 in 2006.
Since 2007, stimulus tax cuts and a weakening economy have come together to push Tax Freedom Day earlier. Meanwhile, government spending has continued to grow: this year the federal budget deficit is projected to be $1.48 trillion.
Income and Payroll Taxes Dominate the Tax Burden
Individual income taxes represent the largest component of Americans’ tax bills, and they are the best known for a number of reasons. All workers have a portion of their paychecks withheld to pay federal, state and, in some cases, local income taxes. Each worker then needs to file the famous Form 1040 with the IRS by April 15th of each year so the government can find out if too much or too little was withheld over the year.
All but seven states levy some sort of income tax on top of the federal income tax, and some localities do as well. When these are added to the federal income tax burden, income taxes are projected to amount to an average of 36 days’ worth of work for Americans in 2011.
We project that during 2011 Americans will spend 22 days working to afford their payroll taxes, or social insurance taxes—those taxes dedicated to funding social insurance programs such as Social Security and Medicare. Almost all taxpayers are aware of these taxes because they appear as line-item deductions on their pay stubs. This year Americans are seeing a significant drop in payroll taxes thanks to the 2 percent reduction passed as part of the Bush-era tax cuts extension compromise.
Tax Freedom Day by State
The total tax burdens borne by residents of different states vary considerably, as illustrated by Figure 3. 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. Higher-income states like Connecticut face a significantly higher total federal tax rate than lower-income states, even before accounting for the fact that many high-income states also have high state and local tax burdens.
Residents of Mississippi will bear the lowest average tax burden in 2011. Because of their modest incomes and extremely low state and local tax burden, we estimate Mississippi’s Tax Freedom Day for 2011 to be March 26. After Mississippi, the four states where Tax Freedom Day will arrive the earliest in 2011 are Tennessee (March 27), South Carolina (March 29), Louisiana (March 30), and South Dakota (March 30).
At the other end of the tax burden spectrum are states with comparatively late Tax Freedom Days. The residents of Connecticut will celebrate last, as usual, working until the 122nd day of the year, from January 1 to May 2, before earning enough to pay all their taxes. Because Connecticut’s income per capita is higher than in any other state, its residents pay extraordinarily high federal income taxes. Nearby states New Jersey (April 29) and New York (April 24) are second and third, respectively. Maryland (April 17) and Washington (April 16) round out the top five.
Tax Freedom Day by State, 2011
| State | Days Spent Working to Pay Taxes |
Tax Freedom Day | Rank |
| United States | 102 | April 12 | |
| Connecticut | 122 | May 2 | 1 |
| New Jersey | 119 | April 29 | 2 |
| New York | 114 | April 24 | 3 |
| Maryland | 107 | April 17 | 4 |
| Washington | 106 | April 16 | 5 |
| California | 106 | April 16 | 6 |
| Wisconsin | 106 | April 16 | 7 |
| Minnesota | 106 | April 16 | 8 |
| Illinois | 105 | April 15 | 9 |
| Massachusetts | 104 | April 14 | 10 |
| Pennsylvania | 104 | April 14 | 11 |
| Wyoming | 103 | April 13 | 12 |
| Rhode Island | 103 | April 13 | 13 |
| Virginia | 102 | April 12 | 14 |
| Nebraska | 102 | April 12 | 15 |
| Florida | 101 | April 11 | 16 |
| North Dakota | 101 | April 11 | 17 |
| Vermont | 100 | April 10 | 18 |
| Utah | 100 | April 10 | 19 |
| Kansas | 100 | April 10 | 20 |
| Delaware | 100 | April 10 | 21 |
| New Hampshire | 99 | April 9 | 22 |
| Oregon | 98 | April 8 | 23 |
| Colorado | 98 | April 8 | 24 |
| Texas | 97 | April 7 | 25 |
| Michigan | 97 | April 7 | 26 |
| North Carolina | 96 | April 6 | 27 |
| Ohio | 96 | April 6 | 28 |
| Iowa | 96 | April 6 | 29 |
| Hawaii | 96 | April 6 | 30 |
| Montana | 95 | April 5 | 31 |
| Indiana | 95 | April 5 | 32 |
| Missouri | 94 | April 4 | 33 |
| Maine | 94 | April 4 | 34 |
| Arkansas | 93 | April 3 | 35 |
| Idaho | 93 | April 3 | 36 |
| Georgia | 93 | April 3 | 37 |
| Alaska | 93 | April 3 | 38 |
| Arizona | 92 | April 2 | 39 |
| Nevada | 92 | April 2 | 40 |
| Oklahoma | 92 | April 2 | 41 |
| Kentucky | 92 | April 2 | 42 |
| Alabama | 92 | April 2 | 43 |
| West Virginia | 90 | March 31 | 44 |
| New Mexico | 90 | March 31 | 45 |
| South Dakota | 90 | March 30 | 46 |
| Louisiana | 90 | March 30 | 47 |
| South Carolina | 88 | March 29 | 48 |
| Tennessee | 86 | March 27 | 49 |
| Mississippi | 85 | March 26 | 50 |
| District of Columbia | 106 | 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. We count in the denominator every dollar that is officially part of national income according to the Department of Commerce’s Bureau of Economic Analysis, and in the numerator every payment to the government that is officially considered a tax is counted. Taxes at all levels of government are included, whether levied by Uncle Sam or state and local governments.
We assume that the nation starts working on January 1, earning the same amount each day and spending nothing. When the nation has finally earned enough to pay all the taxes that will be due for that year, Tax Freedom Day has arrived. Income and tax data are then parsed out to the states, yielding 50 state-specific Tax Freedom Days.