by Howard Stephenson
Americans can celebrate Tax Freedom Day on the 117th day of 2002 — Saturday, April 27. This year’s Tax Freedom day comes two days earlier than in 2001 and four days earlier than in 2000 — the year when Tax Freedom Day fell later than ever in the year — May 1.
Tax Freedom Day is the day when Americans will finally have earned enough money to pay off their total tax bill for the year, if every penny they have earned to that point has gone for taxes. All income that’s officially called income by the government is counted, and everything the government considers a tax is counted. Taxes at all levels of government are included, whether levied by the federal government or state and local governments.
Tax Freedom day is calculated each year by the Tax Foundation of Washington, D. C.
Utah’s Tax Freedom Day
Utah’s Tax Freedom Day arrives on April 23 this year, four days earlier than national Tax Freedom Day. But Utah’s 27th place ranking among the 50 states is not because of low state and local taxes — we’re eighth highest in state and local taxes this year. The reason Utah’s Tax Freedom Day comes earlier is that federal taxes don’t take the same bite out of Utah worker’s paychecks because Utahn’s tend to have more dependent exemptions, more mortgage deductions, and more charitable deductions than the nation as a whole.
According to the Tax Foundation, two factors are combining to make the average American tax burden lighter in 2002: federal tax reductions and a slower economy. Federal tax cuts in 2001 and 2002 lowered this year’s average federal tax burden, and the recession in 2001 followed by slow growth in subsequent months arrested the growth of tax collections at all levels.
Tax Freedom Day gives Americans an easy way to gauge the overall tax take, a task that can be quite daunting due to the multiplicity of taxes at each level of government, especially the “hidden taxes” and fees that are often buried in the cost of living. In effect, Tax Freedom Day provides taxpayers with a “tax barometer” that measures the total tax burden over time and by state.
Working for Each Type of Tax
Individual income taxes represent the largest component of Americans’ tax bills. In 2002, Americans will have to work an average of 51 days to pay federal, state and local income taxes. Another 29 days will be spent working for payroll taxes, which fund social insurance programs such as Social Security and Medicare.
Some taxes are less apparent to the taxpayer than income and payroll taxes. Foremost among these “hidden taxes” are sales and excise taxes. Americans will work 18 days to pay these add-on taxes that raise the prices of nearly all goods and services. Another 11 days will be spent working to pay property taxes, mostly levied by local governments. Americans will then have to work an additional 8 days to pay their share of corporate income taxes, which are collected from companies but ultimately paid by consumers, employees, and shareholders.
Taxes and Other Expenses
The number of days that the average American must work to pay taxes can be compared to the price of other important categories of consumer spending. Americans will work longer to pay for government (117 days) than they will for food, clothing, and shelter combined (106 days). Only in the last decade have taxes exceeded spending on these basic necessities, and federal taxes alone cost Americans more (80 days) than any of the other major budget item.
How Utah Compares
To facilitate comparisons of state/local tax burdens, the new Tax Freedom Day report also presents each state’s tax burden with federal taxes excluded for the last decade. The nation’s average state/local tax burden is 10.2 percent of residents’ income, with the highest being Maine’s 12.8 percent and the lowest being Alaska’s 6.3 percent. Utah’s was eighth highest at 11.2%.
The Tax Foundation’s full report can be found on the web at www.taxfoundation.org.