Earliest Tax Freedom Day in 42 years!
Taxes are due as usual, on April 15th. But for the first time in decades, Tax Freedom Day – the day that Americans will have earned enough money to pay their federal, state, and local tax bill for the year – falls before the tax due date. This year, it's on April 13th. The last time Tax Freedom Day occurred earlier in the year, on April 12th to be exact, Lyndon Johnson was president, and the year was 1967.
Why is Tax Freedom Day so early this year? A mixture of reasons, according to the Tax Foundation, the not-for-profit organization that tracks this event annually. The recession has reduced tax collections faster than it has reduced income. And, the American Recovery and Reinvestment Act of 2009 includes two temporary tax cuts that lower the threshold we have to clear. Even so, the Tax Foundation says that taxes in 2009 will amount to more than the combined totals Americans will spend on food, clothing, and housing.
Tax Freedom Day in history
Tax policy, social policy, and wars have moved Tax Freedom Day up and down the calendar over the last 109 years.
- Back in 1900, when Americans paid only 5.9 percent of their income into the tax coffers, Tax Freedom Day was January 22. From 1900 to 1917, tax rates rose steadily to about 6.7 percent, pushing it forward to January 25th.
- Then came World War I, when the tax burden doubled and by 1921 Tax Freedom Day jumped to February 22nd After the war taxes were reduced, but not to prewar levels.
- In the throes of the Depression, Franklin Roosevelt and his New Deal programs came with higher taxes and Tax Freedom Day moved into March for awhile. Then it receded back into February.
- Once World War II hit, Tax Freedom Day was propelled forever forward past March. By 1960 it was April 11th.
- John Kennedy's tax cuts curtailed rising tax rates and Tax Freedom Day rolled back a bit, to April 9th in 1964. Then came the Vietnam War coupled with Lyndon Johnson's Great Society both of which forced taxes up, and Tax Freedom Day shot forward to April 24th.
- In 1984 Ronald Reagan's tax cuts once again pushed Tax Freedom Day back on the calendar, to April 17th. Then economic growth and a hike in payroll taxes sent it the other way, to April 22nd in 1989.
- In the mid 1990s, Bill Clinton's higher tax brackets increased our tax burden significantly, forcing Tax Freedom Day to a new late date of April 28th, and a string of "record-setting tax burdens," according to the Tax Foundation. In Clinton's last year, 2000, Tax Freedom Day fell on May 3rd, the latest date ever.
- With the country's opposition to tax growing, George W. Bush was elected and immediately cut taxes. That year, though most of the Bush tax cuts were not yet in effect, Tax Freedom Day receded a bit to April 30th. In 2001, it fell to April 19th, then to April 16th by 2003. After that, Tax Freedom Day drifted forward again, till it reached April 27th in 2007. Since then, a combination of stimulus cuts and a weaker economy have caused it to roll backwards.
- Now in 2009, April 13th is the day we can theoretically breathe a sigh of relief. It's the earliest Tax Freedom Day in 42 years, but with the federal budget deficit at 10 figures for the first time ever, any sense of relief is blurred by questions about our ability to rebound under the weight of such debt.
Tax Freedom Day varies by state. The Tax Foundation uses a formula which first looks at taxes borne by residents of each state - paid to the federal government, their own state or local governments, or other state governments - and then combines the results to come up with a national Tax Freedom Day. You can see a map of state by state Tax Freedom Days by clicking here and scrolling to the bottom of the report.