3 Charts Showing America’s Enormous Tax Situation
Paying taxes is one of the largest financial burdens facing Americans. The country works several months every year in order to pay its annual tax bill to Uncle Sam. To help pinpoint when the nation’s tax liabilities are actually covered, the Tax Foundation provides an annual update on Tax Freedom Day.
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the entire year, including federal, state, and local taxes. This year, Tax Freedom Day is on April 24, or 114 days into 2015. That is one day later than in 2014, but due primarily to economic growth that is expected to lift tax revenue from corporations, payrolls, and individuals. Americans are estimated to pay $3.3 trillion in federal taxes and $1.5 trillion in state and local taxes this year.
The foundation calculates Tax Freedom Day by taking all federal, state, and local taxes and divides them by the nation’s income. In the denominator, every dollar that is officially part of national income according to the Department of Commerce’s Bureau of Economic Analysis is counted. In the numerator, every payment to the government that is officially considered a tax is counted.
“The latest ever Tax Freedom Day was May 1, 2000, meaning Americans paid 33% of their total income in taxes that year. A century earlier, in 1900, Americans paid only 5.9% of their income in taxes, meaning Tax Freedom Day came on January 22,” explains the Tax Foundation. “The last time Tax Freedom Day was this late in the year was 2007 (April 25).”
Let’s take a look at three charts showing the nation’s tax situation.
1. When is my state’s Tax Freedom Day?
Tax burdens vary across the country due to differing state tax policies and the progressivity of the federal tax system. As the chart above shows, Connecticut and New Jersey don’t celebrate Tax Freedom Day until May 13, the latest in the nation and four days later than last year. New York doesn’t reach the day until May 8. Louisiana enjoys the lowest average tax burden and has Tax Freedom Day on April 2, followed by Mississippi (April 4) and South Dakota (April 8).
On average, 50% of Americans across the country believe their state tax bills are too high, according to a Gallup poll. In fact, 19 states are within 5 percentage points of that figure, while 17 states are above. States like Maryland, Rhode Island, Illinois, Connecticut, New Jersey, and New York are all well above the average, with two-thirds or more of residents saying their taxes are too high. Roughly half of America also says their federal income bills are too high.
2. History of Tax Freedom Day
While Tax Freedom Day peaked more than a decade ago, it’s still late on a historical basis. For example, World War I taxes pushed the date from January 24 in 1917 to February 8 in 1921. Nonetheless, the date has been occurring in mid to late April for about the last forty years.
In 1932, Americans only spent 10 days paying federal taxes and 46 days paying state and local taxes. By 1940, Americans worked 33 days to pay each. World War II brought increased federal spending and borrowing, with Tax Freedom Day arriving in April for the first time on record in 1943. The federal tax burden never returned to pre-war levels. However, if you include annual federal borrowing, the current Tax Freedom Day would occur on May 8 this year, still sooner than the deficit-inclusive Tax Freedom Day that occurred during World War II on May 25, 1945.
3. Taxes and your budget
Although taxes vary among the millions of people in America, one of the largest bills for many households is Uncle Sam. Americans are expected to pay about $4.8 trillion in federal, state, and local taxes. That’s equal to roughly 31% of the nation’s income. As the chart above shows, Americans will spend more on their taxes then on food, clothing, and housing combined. Although, there are numerous strategies through careful planning to legally help lower your tax bill.
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