April 15 is the deadline to file income taxes, but most Americans with tax liabilities will be working beyond that date to pay taxes.
“Tax Freedom Day” — the day the Tax Foundation calculates Americans will stop working to pay federal, state and local taxes and begin working for themselves — is April 18.
That’s five days later than last year, mainly because of federal government tax increases. The fiscal cliff deal at the start of this year raised federal income taxes on upper-income persons and payroll taxes on nearly everyone. New taxes in the Affordable Care Act, aka Obamacare, also kick in. A big one is a 3.8 percent surtax on unearned income, such as capital gains, dividends and interest.
“The federal income tax is the most progressive income tax system in the developed world. That’s according to the OECD [Organisation for Economic Co-Operation and Development]. So we’re more progressive than France, Sweden, you name it,” said Will McBride, chief economist at the Tax Foundation and lead author of the report. “This is opposite of course of the rhetoric coming from the White House, which claims the rich don’t pay their fair share.”
Nearly 30% of Income
Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 29.4 percent, or 108 days, into the year. Thus, Tax Freedom Day.
But that’s an average. Some states hit their Tax Freedom Day in late March and early April. Others will not hit tax freedom until well into May.
Connecticut has the dubious distinction of having the nation’s latest Tax Freedom Day: May 13. New York and New Jersey are the next latest: May 6 and May 4. These late dates are also a function of the progressivity of the federal tax code. These states have relatively high average incomes. Because a progressive tax system takes proportionally more money as income goes up, high-income states pay proportionally more of their income in taxes. Connecticut, New York and New Jersey also have high state and local taxes.
Earliest States: Louisiana, Mississippi
At the other end of the scale, Louisiana and Mississippi tied for the earliest Tax Freedom Day: March 29. Third-latest was Tennessee: April 2. These states have low average incomes and therefore pay less as a percentage of income. Tennessee also has the big advantage of being one of nine states with no tax on wages.
Taxes are not the only means of funding government. Debt has been a huge factor, with budget deficits of more than $1 trillion in the last four years and a deficit this year expected to be $833 billion. Debt represents future tax collections because it must be repaid with interest. McBride said if taxes were collected to cover the deficit, Tax Freedom Day would be May 9, one of the latest dates ever recorded.
Internet Info
“Tax Freedom Day 2013,” Tax Foundation: http://taxfoundation.org/article/tax-freedom-day-2013-april-18-five-days-later-last-year
