TaxAlmanac:Featured article/June 21, 2005

From TaxAlmanac

Tax Freedom Day

Tax Freedom Day is the day each year when a nation as a whole has earned enough income to fund its annual cost of government. Tax Freedom Day is a registered trademark of the Tax Foundation, a Washington D.C.-based nonpartisan tax research group, and is used as a tool for illustrating the proportion of national income that goes to pay the annual cost of government.

In the United States, Tax Freedom Day for 2005 was April 17. The latest that Tax Freedom Day has occurred is May 3 in 2000. In 1910, Tax Freedom Day fell on January 20. Though Tax Freedom Day has risen and fallen with business cycles, it has steadily moved later into the year over time, which means that the nation's average tax burden has increased.

Methodology

Tax Freedom Day is an estimate of what the nation's tax burden will be in the current year. It is calculated by dividing the official government tally of all taxes collected in each year by the official government tally of all income earned in each year. All data is taken directly from the Bureau of Economic Analysis. Governments — federal, state and local — took 30.3% of income in 1980; 30.5% in 1990; 33.6% in 2000; and so on. This percentage is what is properly called the "nation’s total tax burden." The historical trend and the most recent economic data is used to make a projection of what the tax burden will be in the current year.