What Is Tax Freedom Day?

Tax Freedom Day from Uncle Sam

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Tax Freedom Day® is the first day each year that Americans work for themselves. Every dollar earned before that pays the government. It gives you a way to visualize your tax burden. You can think of the work you do from January until Tax Freedom Day as working for federal, state, and municipal governments. You don't work for yourself until after Tax Freedom Day. In 2017, Tax Freedom Day arrived on April 23. 

How Tax Freedom Day Is Calculated

The Tax Foundation calculates Tax Freedom Day by using the total amount of taxes paid the previous year. It considers historical trends and the most recent economic data to make a projection of the tax burden for the upcoming year.

For 2017, the Foundation projected $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. It takes this total of $5 trillion and divides it by the total personal income earned by Americans each year. The ratio is 31 percent. That means that on average, Americans work a third of their lives just to pay taxes.

For the final step, the Foundation multiplies that ratio by 365. That's 114 days, which fell on April 23, 2017.

Here's another way to visualize it. In January, you work to pay off federal income taxes. February goes toward paying Social Security, Medicare, and other payroll taxes, as well as state income taxes. In March, you pay state and local sales and excise taxes, as well as property taxes. The first 24 days of April, you work to pay corporate income taxes (through higher prices), motor vehicle licence taxes, as well as severance and estate taxes.

The official Tax Freedom Day doesn't include government spending, only government revenue. That's because the federal government is running a budget deficit that will be paid by future generations. If Americans worked to pay off all spending this year, Tax Freedom Day would be May 7. 

Calculate Your Personal Tax Freedom Day

Tax Freedom Day represents the American people as a whole. So what's your personal Tax Freedom Day? Here's an easy way to calculate it for any previous year. You'll have all the information you need when you pay your taxes. First, add up your total state and federal tax obligations. Next, find your adjusted gross income. Divide the taxes by the income to get a percentage.

Now multiply that percentage by 365, the number of days in the year. You will get the number of days it takes to pay off your tax bill. Enter that number into this calculator. That's your personal Tax Freedom Day.

Is It Worth It?

Government budget spending is usually such a large number, it’s hard to relate to your everyday life. Converting budget spending into days worked makes it easier to wrap your head around. With a better picture of your tax burden, you may think that it’s too high.

Americans pay more in taxes than they spend on food, clothing and shelter combined. Now that you know how much of your life is spent paying for government spending, it raises an important question. Why do we have to pay taxes? Obviously to pay for government services. But do you know how your tax dollars are spent?  Do you feel you are getting your money's worth? 

Why Tax Freedom Day Changes

Tax Freedom Day® 2017 is one day earlier than in 2016 and 2015 (April 24). But it's still later than the prior five years.

  • April 21, 2014
  • April 18, 2013
  • April 17, 2012
  • April 12, 2011  
  • April 9, 2010

Why does Tax Freedom Day keep getting later? More revenue is being collected by the government now than in 2010. Americans pay more taxes now because more people are working. Total tax receipts are higher, which makes Tax Freedom Day later.

Another reason Tax Freedom Day is later was because taxpayers got a break in 2009 due to the economic stimulus package. It included tax reductions to give consumers more money to spend and stimulate economic recovery. 

Tax Freedom Day can also get earlier. It's six days earlier than in 2007 before the 2008 financial crisis. Americans pay less in taxes now than in 2002. That's when the first of the Bush tax cuts were passed.

The latest Tax Freedom Day on record occurred on May 1, 2000. This was right before the 2001 recession, when tax rates were higher. On average, families paid 33 percent of total income in state, local and federal taxes. 

The recession provided a strange benefit. Slower economic growth meant that fewer taxes were collected. Many people who were unfortunate enough to lose jobs during the year found out they were put into a lower tax bracket. They paid fewer taxes or none at all. This meant that Tax Freedom Day came earlier during the recession. In 2012, Tax Freedom Day was about a week earlier than in 2007. In 2011, it was two weeks earlier.

The drop in tax revenue was magnified by the Bush tax rebates in 2008 and the Obama tax cuts in 2009 and 2010. Surveys show that most people believe they paid higher taxes under Obama than previously. In fact, the opposite is true. The average taxpayer shelled out less. Unfortunately, it was because of a lower income, thanks to the recession. 

In 2019, Tax Freedom Day should be much earlier. The 2018 Trump tax plan cut income tax rates. It won't take as long to pay for the reduced revenue. Unfortunately, it will increase the deficit and debt. (Sources: "Never a Convenient Time for Childbirth, Death, or..." Bloomberg, April 11, 2016. "Why Is April 15 Tax Day?" Fortune Magazine, April 15, 2002.)