Thursday, April 12, 2012

Tax Freedom Day

The Tax Foundation puts out a report each year reporting "Tax Freedom Day".  It is the day of the year that the average American taxpayer works to pay his share of federal, state, and local taxes.  The tax freedom day this year is listed as April 17, 2012 (not including the Leap Day).

I find this number hard to believe.  In fairness to the Tax Foundation, its article does say that, "If the federal government raised taxes enough to close the budget deficit - an additional $1.014 trillion - Tax Freedom Day would come on May 14 instead of April 17."

While I believe the May 14 date would seem more accurate, it still seems understated to me, and I am not even accounting for government regulations that take away more of our time and effort in our lives.

If we are going to measure a tax freedom day, it should not be done based on just regular taxes.  It should be done based on total government spending.  If government runs a deficit (federal, state, or local), then it is still basically spending taxpayer money, unless you expect it to default on its bonds.  In the case of the federal government, government debt could be (and is) bought up by the Federal Reserve, but then your money is simply being devalued.  In the case of Fed monetary inflation, it might be more accurate to say that dollar holders are paying.  While this would include most American taxpayers, it would also include foreigners who hold U.S. dollars.

So a more accurate measure for a Tax Freedom Day is to use spending.  Using spending, the federal government spends close to 25% of the GDP alone.  The federal budget is about $3.8 trillion.  The annual GDP is approximately $15.3 trillion.  While these numbers may not be perfect, the federal government spends about one quarter of GDP.

The Tax Foundation article lists state and local taxes at $1.42 trillion.  That means they are saying that state and local taxes make up less than 10% of GDP.  I find this quite hard to believe.  I am not sure where they are obtaining this number, but my guess is that it is a lot higher.  If anyone has any sources for a total of state and local spending in the U.S., feel free to leave a link in the comments section.

With the federal government spending about 25% of our income, that would put Tax Freedom Day at about April 1 right there.  I think a more accurate date would be in June for the total.  Prior to the recession hitting in 2008, it would not surprise me if total spending was over 50%, which would put Tax Freedom Day in July.

Regardless, this does illustrate the absurdity.  Government is taking almost half of our money.  This is why so many mothers work and do not have much of a choice to stay home with their kids.  It is why so many Americans struggle to pay their everyday expenses.  Government spending is out of control.  Americans must withdraw their consent to government.  Americans must stop relying on the government.  Americans must realize that their lives will be much better off with a dramatically smaller government.

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