Deconstructing Tax Freedom Day


Today, the Tax Foundation officially announces that Tax Freedom Day will fall on April 26.

Tax Freedom Day is supposed to mark the transition from the portion of the year during which "Americans work to pay taxes" to the part during which "they work to support themselves." It's a clever bit of libertarian propaganda, though one I'll confess I've always thought was based on a bit of a bullshit number. Not in the sense that it's wrong–I'm sure it's properly calculated–but because it's "calculated by dividing the official government tally of all taxes collected in each year by the official government tally of all income earned in each year." Now, obviously, people are paying different marginal rates, so there's not going to be one "tax freedom day" for everyone: People in higher tax brackets are going to spend more of their year working to pay taxes; people in lower brackets less.

But using these aggregates of total taxes and income skews the average up: The top ten percent of tax payers shouldered almost two-thirds of the federal income tax burden as of 2003. They also, of course, earned a disproportionate amount of the income, but using aggregates for both numbers puts a huge amount of weight on the relatively small proportion of people who are in the highest tax brackets, and therefore have the latest "tax freedom day"–far more than if you'd just calculated a "tax freedom day" for each individual or household and then averaged that number for the population. So insofar as people are suppsed to think that Tax Freedom Day represents something like the amount of time they personally are working to pay off their taxes, it seems sort of misleading.

One thing that saves the number from being completely bogus is that it counts all federal state and local taxes, which significantly flattens the rate of taxation across income groups. Still, it seems like a weird way to go about computing Tax Freedom Day if the point is to get a picture of how long the "average person" is working to pay taxes. (It is not, of course, a weird way to do it if the point is just to get the average person as pissed off about taxes as possible.)