WHAT IS Tax Freedom Day
Tax Freedom Day refers to the day an average American has theoretically earned enough money 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.
BREAKING DOWN Tax Freedom Day
Tax Freedom Day is calculated by the Tax Foundation. Tax Freedom Day represents the length of time Americans as a whole have to work in order to pay the nation’s taxes. In 2018, Tax Freedom Day fell on April 19, 109 days into the year and three days earlier than it was in 2017. The Tax Foundation calculates Tax Freedom Day by adding together all federal, state, and local taxes, and then dividing them by the nation’s income.
Americans in 2018 paid a total bill of $5.2 trillion, breaking down into $3.4 trillion in federal taxes and $1.8 trillion in state and local taxes. Though Tax Freedom Day fell earlier in 2018 than it did in 2017, if the Tax Foundation had included annual federal borrowing in the calculation, Tax Freedom Day would have occurred on May 6 instead, 17 days later than it did in 2017.
What Tax Freedom Day Means to You
Tax Freedom Day is a useful indicator for gauging the impact of taxes each year because the calculation includes all taxes incurred, including income tax, federal tax, state tax, Medicare and excise taxes. Because Tax Freedom Day takes the national average, it does not always accurately represent the tax burdens borne by residents of different states. For example, if you are a resident of New York, your Tax Freedom Day is May 14, but if you are a resident of Louisiana or Alaska your Tax Freedom Day is much earlier, on April 4. Along with New York, New Jersey and Connecticut have later Tax Freedom dates, both on May 3. Tennessee, Oklahoma, and Alabama have a still earlier date, with residents reaching their freedom on April 5.
Who decides what day is Tax Freedom Day?
The Tax Foundation, an independent tax policy nonprofit, calculates Tax Freedom Day. Founded in 1937, the nonprofit funds research and analysis to improve tax policy at state, local and federal tax levels. The Tax Foundation also produces a variety of indices and other data, including the State Business Tax Climate Index, Taxes and Growth Models, and the Options for Reforming America’s Tax Code. The Tax Foundation is also connected with influential people working closely with governors, key policymakers, and presidential candidates.