Today is tax day which means it’s the deadline for Americans to file their income tax returns with the Internal Revenue Service. In light of the significance of the date, the Tax Foundation has released its annual analysis of Tax Freedom Day.
Tax Freedom Day
Tax Freedom Day falls on April 23 this year, 113 days into the year. What exactly is this day and what does it mean for taxpayers?
According to the Tax Foundation, Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. It is computed by taking all federal, state, and local taxes and divides them by the nation’s income.
Tax Freedom Day fell on April 24 last year. This year, Americans will collectively pay more in taxes than they spend on housing, food and clothing combined and pay $3.5 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total bill of more than $5.1 trillion, or 31 percent of the nation’s income.
With regards to Tax Freedom Day, 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 (10 days), and property taxes (10 days). The remaining 7 days are spent paying estate and inheritance taxes, customs duties, and other taxes.
For this year’s Tax Freedom Day, the Tax Foundation analyzed how federal borrowing fits into the overall picture.
Since 2002, federal spending has exceeded tax revenues, with the budget deficit exceeding $1 trillion annually from 2009 to 2012. In 2017, the deficit is expected to shrink slightly, from $657 billion to $612 billion. The Tax Foundation notes that if this annual federal borrowing is included to represent future taxes that are owed, it would push Tax Freedom Day out two weeks to May 7. The latest ever deficit-inclusive Tax Freedom Day occurred during World War II, on May 25, 1945.
Tax Freedom Day by State
Tax Freedom Day also varies on a state-by-state basis due to differing state tax policies and the progressivity of the federal tax system. The map below from the Tax Foundation shows when Tax Freedom Day occurs in each state. Connecticut has the latest date (May 21) and Mississippi has the earliest (April 5).
What Do Americans Think of Their Taxes?
So what do Americans think about their tax bills?
According to a recent Gallup poll, a majority of people believe that the amount of income taxes they pay is fair. 61% of respondents said that the income tax they pay is fair, the most positive response since 2009. However, 51% said their taxes are too high, but this was down from 57% last year.
The federal income tax code is notorious for its length and complexity. A recent report from the National Taxpayers Union Foundation found that for the approximately 150 million 1040 forms filed in 2016, Americans spent 1.9 billion hours of their time figuring out how much they owed the federal government. Additionally, the Taxpayer Advocate Service estimates that taxpayers spend over 6 billion hours complying with the tax code.
What is your opinion of the federal income tax system and your total tax bill? Share your thoughts in the comments below.