In 2012, Americans will work 8 hours a day, five days a week, from the beginning of the year until April 17 to pay for the spending incurred in their name by federal, state, and local governments. That’s one of the findings of the Tax Foundation’s latest calculation of “Tax Freedom Day.”
Tax Freedom Day (trademarked by the foundation) is one way to express the cost of government. According to this year’s version of the report, Americans spend 107 days out of 365 days in the year working for governments, to pay $6.2 trillion in taxes. The single largest category is the individual income tax (40 days worth of work), followed by payroll taxes (23 days), sales and excise taxes (15 days), property taxes (12 days), corporate income taxes (10 days), and miscellaneous taxes (7 days).
If you account for deficit spending, Tax Freedom Day comes on May 14. That is within one week of the record date of May 21, 1945–a time in World War II just after the U.S. had finished defeating Nazi Germany and was closing in on the Japanese homeland.
The report also calculates Tax Freedom Day on a state-by-state basis. As you might expect, it comes earlier in some states than in others. It comes the earliest in Tennessee (March 30) and the latest in Connecticut (May 5). Tennessee has no state income tax. Connecticut has a state income tax. More importantly, its residents have higher incomes than those of any other state, which means they get more heavily taxed by the so-called progressive structure of the federal income tax. In Minnesota, the day comes on April 22, later than all but seven other states.
Spending on goods and services is a necessary fact of life. We spend money on food, clothing, and housing, for example, though less on those combined than on taxes. Some spending on government is necessary. But the question is, “Are we getting our money’s worth?” Governments get their money by taking money away from the non-governmental sector in ways that are obvious (hello, April 15!) and not so obvious (the opportunity costs of the taxes paid, interest on debt, inflation induced by monetizing the federal debt, etc.).
Like debt, government spending can be good or bad, wise or foolish. Incurring debt to buy something that will help you permanently increase your income by 30 percent is wise; incurring debt to buy a cache of drain cleaner, which you then pour on your breakfast cereal every day, is not.
So the concept of Tax Freedom Day doesn’t in itself tell us whether we spend too much or too little on government. To make that judgment, we need to look elsewhere. (What does it do to our incomes? Civil society?) But the fact that we spend 30 percent of the year working to pay for government should drive everyone to ask some hard questions of our public officials, and ourselves.