Andrew Chamberlain of the Tax Foundation responds to Julian Sanchez' recent post about Tax Freedom Day:
Re-Constructing Tax Freedom Day
by Andrew Chamberlain
In a recent post, Reason editor Julian Sanchez lobs a serious criticism at "Tax Freedom Day," annually published by the Tax Foundation.
It came as a shock, since Tax Freedom Day is an eminently libertarian idea designed to remind Americans of the economy's annual tax burden. That puts us in the odd position of defending Tax Freedom Day against a libertarian magazine, many of whose readers believe taxation is fundamentally "theft."
But Sanchez's criticisms were strongly worded and public—when they should've been neither—so we're forced to respond.
Tax Freedom Day is simple. It divides total taxes by national income, which is the economy's overall tax rate. Then we express it as days of the calendar year. This year taxes absorbed 32 percent of income, and Tax Freedom Day is April 26th.
Sanchez says this is misleading. He says it "disingenuously creates the impression that it's somehow a measure of how much time most Americans spend working to pay off their taxes." He complains "there's not going to be one 'tax freedom day' for everyone."
Is this criticism really valid? Tax Freedom Day gives America's total tax burden. It's not the burden of "most Americans," or "middle-income Americans," or any other subset. It's everybody. So when reporters write, "Americans pay on average 31.7 percent of income in taxes," that's semantically and economic correct. "Americans" means the whole economy. And that's exactly what Tax Freedom Day is.
Sanchez assumes people are misled because they don't understand some pay higher taxes than others. This is implausible. In addition to national Tax Freedom Day, we calculate each state's Tax Freedom Day, showing some states face higher taxes than others. Both are widely reported. Reporters understand that—just like average height, income or life expectancy—some are above and some below. And so does the public.
Sanchez instead wants the median American tax burden. But what he doesn't seem to realize is tax burdens have to be calculated—they don't just exist—and median ones are almost impossible.
Finding median total tax burdens would require tax incidence questions no economist can answer. How would Sanchez allocate corporate income tax to individuals? Property taxes paid by companies? For all 7,500 U.S. taxing jurisdictions?
Not even the Congressional Budget Office does this. And if we tried, we'd surely be attacked for our incidence assumptions. And the study would be too complex for reporters. And Americans would know less about the burden of government.
Which brings me to the real problem with Sanchez's criticism. Even if his objections were valid, how does a public attack on Tax Freedom Day promote Reason's libertarian ideals? Should we stop publishing it? Would the world be better if, once a year, USA Today didn't remind Americans that government costs more than food, clothing and housing combined?
As a matter of judgment, Sanchez's criticism is hard to understand. Is it worth attacking a popular tax-education campaign to be provocative? Is it worth giving ammunition to advocates of ever-larger government?