Tax Freedom Day

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DEFINITION of 'Tax Freedom Day'

The day that the average American has earned enough money (in theory) to pay off his or her total tax obligations for the year. The calculation used to determine this date assumes that everyone in the nation works for eight hours a day beginning January 1, and that every dollar earned is not spent. The Tax Foundation calculates Tax Freedom Day and also publishes a short report that summarizes trends relating to this measure.

INVESTOPEDIA EXPLAINS'Tax Freedom Day'

In 2008, Tax Freedom Day was calculated as April 23, which means that it took Americans 113 days of work to pay their tax obligations.

Tax Freedom Day is a useful indicator for gauging the impact of taxes each year. The calculation includes all taxes incurred, including income tax, federal tax, state tax, medicare and excise taxes. Examination of the trends related to Tax Freedom Day illustrates how changes in tax law, government monetary policy, and even World War I and II have affected when Tax Freedom Day will fall.

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