Tax Freedom Day Is No Cause For Celebration

Here’s an excuse to party if anyone needs one:  it’s Tax Freedom Day.   It’s a  “holiday” invented in 1948 to commemorate the time of the year when Americans have paid off the amount of money that they owe to local, state and federal authorities.   The conservative think tank tank Tax Foundation has publicized it since 1971.

Nonetheless,  Tax Freedom Day always gets plenty of press because there are so many dramatic factoids to digest such as that the holiday arrived three days later in 2011 than it did in 2010, but nearly two weeks earlier than in 2007.   Also, the Foundation argues that Americans spend more on taxes than on groceries, clothing and shelter combined, equaling about 28% of income.

Mark Robyn, a staff economist at the Tax Foundation, dismisses criticism that Tax Freedom Day is misleading or irrelevant. He added that people have a right to know about their total tax burden.

“This looks at the total tax bite at all levels of government,” he says. “We don’t make any judgments  if taxpayers are not getting their moneys worth.”

The U.S. tax burden is smaller than many other countries including Germany, Italy, France and the U.K. though it is larger than Japan and Canada.   The far more important problem for the U.S. is debt.   Congress is currently debating raising the $14.3 trillion debt ceiling.    The U.S. has a debt-to-GDP ratio of about 96%, the highest it’s been since World War II.  That should be a far more frightening prospect for Americans than their tax burden, experts say.

“The Tax Foundation has been doing this for years,” says Christopher Bergin, head of the non-profit Tax Analysts, says in an interview.  “Truth be told it’s a bit of a stunt.  …. First of all, we will never be free of taxes. Our children will never be free from taxes.”

What Bergin and other experts worry about is that Tax Freedom Day may feed into the notion that taxes, which build roads, fund schools and pay police officers, are an intrinsically bad thing.   People will pay taxes willingly if they see they are getting value for their money.

The left-leaning Center for Budget and Policy Priorities argues that data used by the Tax Foundation has “serious methodological” issues such as using figures for the average taxpayer instead of a statistical mean.  “Many journalists and policymakers have misinterpreted the Tax Foundation’s report as reflecting the tax burdens faced by typical middle-income workers,” the group says.”

Officials at the Tax Foundation stand by their work.    They also deny that they are no taking the deficit seriously, which have increased significantly since 2008.

“As a result, Tax Freedom Day may give the impression that the burden of government is smaller than it is,” writes the Tax Foundation’s Kail Padgitt in a blog post. “If the federal government were planning to col­lect enough in taxes during 2011 to finance all of its spending, it would have to collect about $1.48 trillion more, and Tax Freedom Day would arrive on May 23 instead of April 12—adding an additional 41 days to the nation’s work for government. This date for a deficit-inclusive measure is the latest since World War II.”

Former New York Times reporter David Cay Johnston, a Pulitzer Prize winner, argues that many presidents who called themselves fiscal conservatives including George W. Bush actually ran up huge deficits.  The last president to have a balanced budget was Bill Clinton.

“We cannot solve our fiscal problems simply by cutting spending, ”  says Johnston, who writes a column for Tax Analysts.  “We are going to have to pay higher taxes.  …  Any politician that tell us that you can cut your way to prosperity is lying.”

Johnston even has an alternative holiday he calls Under Taxed Freedom Day when all the individual income taxes equal all the year’s interest on the national debt.   He figures it would teach Americans about the perils of borrowing to the point where the deficit  tops $1 trillion.

Under Taxed Freedom Day will happen in June.

–Jonathan Berr