What is Tax Freedom Day?

Jessica Ellis
Jessica Ellis

Tax Freedom Day is an unusual and controversial annual occasion that references the tax debt of a nation as compared to the income of its citizens. Started by an American businessman in 1948, Tax Freedom Day is marked by many countries throughout the world each year. In basic terms, Tax Freedom Day is the date when a nation's income meets its tax burden for the year.

Tax Freedom Day is the date on the calendar when a nations' income meets its tax burden for the year.
Tax Freedom Day is the date on the calendar when a nations' income meets its tax burden for the year.

Supporters of Tax Freedom Day, notably the American think tank the Tax Foundation and the Canada-based Fraser Institute, use formulas to determine the size of the national tax debt, including federal, state, local taxes, personal income taxes, and capital gains taxes, and property taxes. Then, by dividing that total by the amount of income generated in the nation, an exact date can be reached at which the income level meets the total debt. One common slogan of supporters is that Tax Freedom Day represents the day on which workers stop paying for the government and start earning for themselves.

There are many objections to both the formula and the concept used in Tax Freedom Day statistics. In the first place, income levels and personal taxes vary widely depending on tax brackets and involvement in things like capital gains or property ownership; with deductions, tax bracketing, and other considerations, most people do not pay taxes based on an identically equal division of the total tax burden. Secondly, some detractors point out the idea is somewhat misleading, as most people do not save all their income up to a point in the year for tax-paying purposes, but rather pay as needed.

As an abstract idea, the concept behind the idea can be quite fascinating. Determining how much the nation as a whole pays for taxes from a general income pool can give some shape to the concept of how much government costs. Tax Freedom Day can also be broken down on a regional level; in the United States, the Tax Foundation provides annual statistics for each state.

Many other statistical analysis and think tank groups have adopted the concept around the world, leading to interesting comparisons between nations. India, Bulgaria, Israel, Germany, France, and Australia are some of the countries that have investigated similar statistics in their own countries. Norway and Sweden, according to some sources, have the latest yearly Tax Freedom Day, due in part to the extensive social service plans paid for through similar tax systems. Though it is important to remember that statistics are estimates and not universally accepted, some sources say that it may take around 200 days for the income levels of Norway and Sweden to reach the same amount as the tax burden.

In the United States, Tax Freedom Day generally falls in April. According to the Tax Foundation, which has put out statistics on the subject since 1971, the latest the day has ever fallen was 1 May 2000. By contrast, the Tax Foundation notes, in 1900, Tax Freedom Day came less than a month into the year, on 22 January 1900.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a wiseGEEK writer.

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