Congratulations. You may not have sent a check or hit the "send" button yet, but you've already put in the work to free yourself from Uncle Sam's grip.
Tax Freedom Day, the made-up holiday when the average American starts working for him- or herself, is today -- a day later than last year, but two weeks earlier than in 2007. By April 9, says the Tax Foundation, a research group, Americans will have earned enough, on average, to pay all of their federal, state and local tax obligations for the year.
For 2010, the Tax Foundation estimated that a typical American will work 98 days to pay taxes, longer than the amount of work needed to cover annual food and shelter expenses combined.
Tax bite growing? Not reallyThe Tax Foundation was begun in the 1930s by a handful of corporate executives, including the chairman of General Motors and the president of Standard Oil of New Jersey. The foundation has tracked Tax Freedom Day since 1971, part of a continuing effort to make Americans more conscious of what they pay in taxes.
Federal income taxes take up about two-thirds of total tax spending, state and local taxes about a third. Since 1943, the number of days required to meet federal taxes has been roughly the same: about 70. That means that the size of the U.S. government's tax bite relative to people's paychecks has changed little across a dozen presidencies, three major wars, a cold war and a handful of recessions.
For the first 40 years of the 20th century, state and local taxes were generally higher than federal taxes, and total taxes remained below 10% until the 1930s. That's when President Franklin D. Roosevelt attacked the Great Depression with the New Deal, expanding the role of the federal government and expanding the taxes needed to pay for the programs. The costs of waging World War II swelled taxes even further in the 1940s.
Maybe the glass is half fullCritics, however, contend that even the phrase "tax freedom" is heavily freighted.
"It's quite misleading," warns Karen Kraut of United for a Fair Economy, a nonprofit social-justice group. "By using the word 'freedom,' Tax Freedom Day is carefully constructed to associate taxes with freedom's opposite -- slavery, incarceration, oppression -- and promotes the idea that taxes are vile."
Other critics take issue with the way the foundation calculates the date. The Center on Budget and Policy Priorities, a Washington, D.C., think tank representing the interests of low-income families in debates on budget and tax policies, says middle-income Americans "pay significantly less in taxes as a share of their income than the Tax Foundation implies."The problem has to do with how "average" is defined. The foundation uses the mathematical average: total wages divided by total taxes. But the think tank argues that because the tax system is progressive, people with higher incomes pay a greater percentage of their incomes in taxes.
Though Tax Freedom Day is often referred to as the date when the "average American" has finished "working" for the government, the think tank says families in the middle of the income spectrum work 40% fewer days to earn enough to pay taxes than the Tax Freedom Day average.
Yet some observers believe that because of hidden fees and accounting artifices, Americans pay even higher taxes than the Tax Foundation asserts.
Updated April 8, 2010