April 24th marks Tax Freedom Day, 2016. You may ask – What is Tax Freedom Day? Quite simply, Tax Freedom Day marks the point in the year when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income.
This year, Americans will work the longest to pay federal, state, and local individual income taxes (46 days). Payroll taxes will take 26 days to pay, followed by sales and excise taxes (15 days), corporate income taxes (nine days), and property taxes (11 days). The remaining seven days are spent paying estate and inheritance taxes, customs duties, and other taxes.1
Tax Freedom Day is a significant date for taxpayers and lawmakers because it represents how long Americans as a whole have to work in order to pay the nation’s tax burden. Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.
How Has Tax Freedom Day Changed over Time?
The latest ever Tax Freedom Day was May 1, 2000, meaning Americans paid 33 percent of their total income in taxes that year. A century earlier, in 1900, Americans paid only 5.9 percent of their income in taxes, meaning Tax Freedom Day came on January 22. The last time Tax Freedom Day was this late in the year was 2007.
Tax Freedom Day varies among the 50 U.S. states, as incomes and state & local taxes differ from state to state. In 2015, Louisiana had the lowest total tax burden, earning enough to pay all their tax obligations by April 2. Connecticut had the heaviest tax burden—Tax Freedom Day there arrived May 13.
So what does Tax Freedom Day mean to you? Tax Freedom Day provides Americans with an easy way to gauge the overall tax burden they need to consider in budgeting and financial planning. With the myriad of taxes to consider, often taxes become “hidden” in the household financial equation and overlooked until budgeting does not allow for appropriate tax payments.
After all, taxes are one of the only things sure in life!
1Tax Foundation, April 6, 2016
